From Containment To Recovery: World Bank OCTOBER 2020

WORLD BANK EAST ASIA AND PACIFIC ECONOMIC UPDATE OCTOBER 2020
FROM CONTAINMENT TO RECOVERY
10187-EAP Economic Update_CVR_BLK_74701.indd 1 9/28/20 3:04 PM

WORLD BANK EAST ASIA AND THE PACIFIC ECONOMIC UPDATE, OCTOBER 2020
From Containment to Recovery
10187-EAP Economic Update_74701.indd 1 9/28/20 1:42 PM

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Contents
List of Abbreviations viii
Acknowledgmentsx
Overviewxii
Containing COVID-19 2
Exposure to a World Economy in Trouble 3
The Economic Impact 5
The Government Response 12
Prospects for Recovery 15
Implications for Inclusive Growth 19
An Integrated View of Policy 33
Annex A1 50
Annex A2 51
Contents iii

EAST ASIA AND THE PACIFIC ECONOMIC UPDATE, OCTOBER 2020
List of Figures
Figure 1. COVID-19 has hit countries with direct and indirect shocks which governments are trying to
mitigate1
Figure 2. EAP countries have so far suffered less from COVID-19, and the disease has been largely
contained, except in Indonesia and the Philippines 1
Figure B1.1. Comparing containment measures between EAP and rest of the world 2
Figure B1.2. The impact of lockdowns, testing, and economic support over time on the spread of COVID-19 3
Figure 3. EAP countries have strong links to the rest of the world through flows of goods, services, labor,
and capital 4
Figure 4. Much of the world has sunk into an unprecedented recession 4
Figure 5. COVID-19 has created exceptional uncertainty 5
Figure 6. Domestic and external shocks have sharply reduced growth in the region 5
Figure B2.1. Comparing correlates of growth between EAP and rest of the world 6
Figure B2.2. The impact of the disease, containment strategies, external exposure, and fiscal capacity
on economic growth 7
Figure 7. GDP growth was pulled down by shrinking private consumption and investment, and by
contracting manufacturing and services 8
Figure 8. The contraction led to a loss of jobs in services and manufacturing 9
Figure B3.1. Reversed rebalancing 9
Figure 9. Firm sales and household earnings mirror the macroeconomic contraction 10
Figure 10. Up to 38 million more people are being pushed into poverty as a result of the pandemic 11
Figure 11. Students have lost significant school time in many parts of the region 11
Figure 12. To stem the economic pain, governments provided fiscal support to firms and households 12
Figure 13. Coverage of programs providing support to households during the pandemic has varied
across countries 13
Figure 14. A fraction of firms received policy support 14
Figure 15. Governments have also loosened monetary policy and increased support
for the financial sector 14
Figure 16. Recovery depends on suppression of the disease, global economic conditions,
and state support 15
Figure 17. The capacity to detect and respond to epidemics is uneven across countries 15
Figure 18. Trade is recovering, and capital flows are stabilizing 16
Figure 19. Global economic activity is beginning to recover 16
Figure 20. Output is unlikely to catch up to the precrisis trend 18
Figure 21. About four-fifths of the regional economies, including all Pacific Island economies, are
expected to contract in 2020 19
Figure 22. The COVID-19 shock will hurt growth by inhibiting investment, eroding human capital, and
dampening productivity 20
Figure 23. The EAP region was witnessing a productivity slowdown before COVID-19 20
Figure 24. Fiscal positions are expected to deteriorate and add to government debt 21
Figure 25. Private debt in EAP has been gradually increasing, driven by households and nonfinancial
corporates22
Figure 26. Existing levels of debt are high in some countries but most of the debt is domestic
and private 22
iv Contents

Figure 27. Financial institutions in EAP are relatively well capitalized but nonperforming loans
are increasing 24
Figure 28. School closures are expected to have lasting impacts on students’ learning in the region 24
Figure 29. Lost learning-adjusted years of schooling have real costs in terms of peoples’ earnings 25
Figure 30. The effects of the COVID-19 shock on learning are likely to be larger among the poor than
among the wealthy 25
Figure 31. Food insecurity may be driven by income losses 26
Figure 32. Firms are increasing their use of digital platforms and investing in digital solutions 27
Figure 33. Export growth across countries was hurt by their restrictions on work mobility 28
Figure 34. China’s import growth from the United States has declined but from EAP has picked up this
year relative to last year 29
Figure 35. Post-tsunami changes in import patterns suggest relocation where there was high
dependence, not reshoring 30
Figure 36. Post-tsunami changes suggest GVC relocation is sensitive to EAP country conditions 31
Figure 37. The structure of services trade is changing: shrinking face-to-face and growing digitally
delivered services 32
Figure 38. COVID-19 will dampen potential growth 33
Figure 39. Strengthening capacity for smart containment can soften the trade-off between saving lives
and preserving livelihoods 34
Figure B5.1. Fiscal positions deteriorate in the aftermath of epidemics 37
Figure 40. Revenue mobilization is comparatively low in developing EAP region 38
Figure B5.2. Worsening fiscal positions contribute to output losses in the aftermath of epidemics 38
Figure 41. Most countries financed their fiscal deficit through increased domestic borrowing 39
Figure B6.1. Fossil fuel subsidies account for substantial share of GDP 40
Figure 42. The Debt Service Suspension Initiative can have significant benefits for some EAP countries 42
Figure 43. While most East Asia and Pacific countries have spent relatively little on social protection
pre-COVID, the response to the crisis has been substantial in most countries 44
Figure 44. The scale of a country’s COVID-19 social protection response is related to a country’s exisitng
“delivery capacity” 44
Figure 45. Recourse to trade-restricting measures has declined significantly and to trade liberalizing
measures has increased slightly 46
Figure 46. EAP countries still maintain relatively restrictive services trade policies 47
Figure A1.1. Countries that have contained the disease have curtailed mobility less 50
Contents v

List of Tables
Table 1. The region’s economies have been fiscally prudent, but existing vulnerabilities coupled
with the size of the shock are a cause for concern 23
Table 2. Debt distress remains high for several Pacific Island economies 41
Table A2.1. Disease progression and policy response in Vietnam, Indonesia, and the Philippines 51
Table A2.2. Developing East Asia and Pacific: baseline and lowercase GDP growth projections 52
vi Contents

List of Boxes
Box 1. The correlates of successful containment 2

Box 2. The correlates of the impact on economic growth 6
Box 3. COVID-19 and rebalancing China’s economy 8
Box 4. Accelerating and anticipating the development of the COVID-19 vaccine 35
Box 5. Fiscal positions and economic growth after pandemics 37
Box 6. Carbon pricing: Sustainable finance for sustainable development? 40
Contents vii

List of Abbreviations
AMC Advanced Market Commitment MFN Most Favored Nation

DSA Debt sustainability analysis NBFI Nonbank Financial Institutions
DSSI Debt Service Suspension Initiative NPL Nonperforming loans
EAP East Asia and the Pacific OECD Organisation for Economic Co-operation
ECQ Enhanced Community Quarantine and Development
EIU Economist Intelligence Unit PBOC People’s Bank of China
EMDE Emerging Markets and Developing Countries PPEs Personal protective equipment
FDI Foreign Direct Investment PPG Public and Publicly Guaranteed
GDP Gross domestic product PPP Purchasing power parity
GEP Global Economic Prospects R&D Research and Development
GVC Global Value Chain STRI Services Trade Restrictions Index
IDS International Debt Statistics SME Small and medium enterprise
IMF International Monetary Fund TFP Total factor productivity
LAYS Learning-Adjusted Years of Schooling U.S. United States
LPM Local projection method WHO World Health Organization
Regions, World Bank Classification and Country Groups LAC Latin America and the Caribbean
MNA Middle East and North Africa
EAP East Asia and Pacific SAR South Asia
ECA Eastern Europe and Central Asia SSA Sub-Saharan Africa
Country Abbreviations LAO Lao People’s Democratic Republic

MEX Mexico
AUS Australia MNG Mongolia
BRA Brazil MMR Myanmar
BRN Brunei Darussalam MYS Malaysia
CAN Canada NRU Nauru
CHN China PHL Philippines
FJI Fiji PLW Palau
FSM Federated States of Micronesia PNG Papua New Guinea
IDN Indonesia RMI Republic of the Marshall Islands
IND India RUS Russia
JPN Japan SGP Singapore
KHM Cambodia SLB Solomon Islands
KIR Kiribati THA Thailand
KOR Republic of Korea TLS Timor-Leste
viii List of Abbreviations

List of Abbreviations continued
TON Tonga USA United States

TUR Turkey VNM Vietnam
TUV Tuvalu VUT Vanuatu
UK United Kingdom WSM Samoa
Currency Units Kip Lao kip

P Philippine peso
A$ Australian dollar RM Malaysian ringgit
$NZ New Zealand dollar RMB Chinese renminbi
B Thai baht Rp Indonesian rupiah
CR Cambodian riel SI$ Solomon Islands dollar
D Vietnamese dong Tog Mongolian tugrik
F$ Fiji dollar US$ Timor-Leste (U.S. dollar)
K Myanmar kyat US$ United States dollar
K Papua New Guinea kina
List of Abbreviations ix

Preface and Acknowledgments
This report is a collective endeavor and involved several parts of the Bank including DEC, EAP, EFI, and HNP.
It was prepared by a team led by Yew Keat Chong, Ergys Islamaj, Aaditya Mattoo, and Ekaterine T. Vashakmadze. Other
members of the team were Yu Cao, Marie-Helene Cloutier, Joao Pedro Wagner De Azevedo, Francesca de Nicola, Reno
Dewina, Sebastian Eckardt, Ugo Gentilini, Vera Kehayova, Shafaat Khan, Sinem Kilic Celik, Young Kim, Duong Le,
Norman Loayza, Maria Ana Lugo, Andrew D. Mason, Fabiola Saavedra Caballero, Aparnaa Somanathan, Jonathan Timmis,
Trang Thu Tran, Franz Ulrich Ruch, Ikuko Uochi, and Cecile Wodon. We thank Mohamed Almenfi, Diana Goldemberg,
Sarah Hebous, Lydia Kim, Stephen Ling, Taisei Matsuki, Alen Mulabdic, Tobias Pfutze, Alvaro Raul Espitia Rueda, Apurva
Sanghi, Nurlina Shaharuddin, Daria Taglioni, Tao Wang, Lucie Wuester, and Juncheng Zhou for significant contributions.
Victoria Kwakwa provided valuable guidance. We are grateful for helpful discussions and suggestions to Carlos Arteta,
Benoit Bosquet, Eric Caldwell Johnson, Alejandro Cedeno, Souleymane Coulibaly, Ndiame Diop, Daniel Dulitzky, David
Gould, Birgit Hansl, Nicholas Keyes, Denis Medvedev, Deepak Mishra, Lars Moller, Rinku Murgai, Zafer Mustafaoglu,
Philip O’Keefe, Firas Raad, Martin Raiser, Karlis Smits, Arvind Subramanian, Cecile Thioro Niang, and Hassan Zaman;
and staff of the EAP region who participated in the consultation meetings on the 20th of July, and 10th of September
and sent written comments.
The following staff from the Macroeconomics, Trade and Investment Global Practice and the Poverty and Equity Global
Practice prepared country-specific macroeconomic outlook pages: Souleymane Coulibaly, Claire Honore Hollweg, Sodeth
Ly, Poonyanuch Chockanapitaksa, Kimsun Tong, Sebastian Eckardt, Luan Zhao, Ibrahim Saeed Chowdhury, Reno Dewina,
Ralph Van Doorn, Abdoulaye Sy, Indira Maulani Hapsari, Angella Faith Lapukeni, Yus Medina Pakpahan, Sailesh Tiwari,
Hans Anand Beck, Fang Guo, Chandana Kularatne, Somneuk Davading, Keomanivone Phimmahasay, Melise Jaud,
Konesawang Nghardsaysone, Richard Record, Shakira Binti Teh Sharifuddin, Mahama Samir Bandaogo, Sheau Yin Goh,
Jean-Pascal Nguessa Nganou, Davaadalai Batsuuri, Undral Batmunkh, Hans Anand Beck, Faya Hayati, Thi Da Myint,
Thanapat Reungsri, Ilyas Sarsenov, Darian Naidoo, Rong Qian, Kevin C. Chua, Kevin Thomas Garcia Cruz, Kiatipong
Ariyapruchya, Phonthanat Uruhamanon, Pedro Miguel Gaspar Martins, Jacques Morisset, Dorsati Madani, Quang Hong
Doan, Duc Minh Pham, David M. Gould, Anna Robinson, Andrew Blackman, Kim Alan Edwards, Demet Kaya, Lodewijk
Smets, Darian Naidoo, Carlos Orton Romero, Wendy Karamba, Maria Ana Lugo, Sailesh Tiwari, Tanida Arayavechkit,
Kenneth Simler, Zainab Ali Ahmad, Emilie Bernadette Perge, Giorgia Demarchi, Kristen Himelein, Nadia Belhaj Hassine
Belghith, Ikuko Uochi, Judy Yang, Bambang Suharnoko Sjahrir, Virgi Agita Sari, Taufik Indrakesuma, Sharon Faye Alariao
Piza, Kristen Himelein. The work was managed by Deepak Mishra and Lars Christian Moller for the Macroeconomics, Trade
and Investment Global Practice, and by Rinku Murgai for the Poverty and Equity Global Practice. Benoit Philippe Marcel
Campagne, Kristina Catherine Tan Mercado, Alexander Haider, and Monika Anna Matyja made contributions to the
model, table production, and assisting staff with their forecasts. Buntarika Sangarun and Poonyanuch Chockanapitaksa
provided technical support.
The report was edited and typeset by Shepherd, Incorporated.
x ACKNOWLEDGMENTS

Throughout the report, geographic groupings are defined as follows:
Developing East Asia and Pacific comprises Cambodia, China, Indonesia, Lao People’s Democratic Republic (PDR),
Malaysia, Mongolia, Myanmar, Papua New Guinea, the Philippines, Thailand, Timor-Leste, Vietnam, and the Pacific
Island Countries.
The Pacific Island Countries comprise Fiji, Kiribati, the Marshall Islands, the Federated States of Micronesia, Nauru,
Palau, Samoa, the Solomon Islands, Tonga, Tuvalu, and Vanuatu.
The ASEAN member countries comprise Brunei Darussalam, Cambodia, Indonesia, Lao PDR, Malaysia, Myanmar, the
Philippines, Singapore, Thailand, and Vietnam.
The ASEAN-5 comprise Indonesia, Malaysia, the Philippines, Thailand, and Vietnam.
The analysis in this report is based on the latest country-level data available as of September 17, 2020.
ACKNOWLEDGMENTS xi

Overview
Successful containment: The pandemic has so far been contained in parts of the EAP region, but not in Indonesia and
the Philippines, and is still a threat to other countries, most recently Myanmar. The countries that contained the disease
used a combination of stringent mobility restrictions, extensive testing-based strategies, and information programs to
encourage precautionary behavior.
Economic distress: The pandemic and efforts to contain its spread led to a significant curtailment of economic activity.
These domestic difficulties were compounded by the pandemic-induced global recession which hit EAP economies that
rely on trade and tourism hard. Country outcomes were generally related to how efficiently the disease was contained and
how exposed countries were to external shocks. Output contracted by 1.8 percent in China in the first half of 2020 and
by 4.0 percent on average in the rest of the region. The COVID-19 shock is expected to increase the number of people
living in poverty in the region by 38 million in 2020—including 33 million who would have otherwise escaped poverty,
and another 5 million who would be pushed back into poverty—using a poverty line of US$5.50/day (2011 PPP).
Relief: In response, EAP governments have committed nearly 5 percent of GDP on average to support public health
systems, help households to smooth consumption, and help firms to avoid bankruptcy. But since these countries
previously spent less than 1 percent of their GDP on average on social assistance, scaling up and implementation have
proved difficult. In several countries, assistance has so far reached less than 25 percent of households whose incomes
fell and only 10–20 percent of eligible firms. Reaching workers and firms in the informal sector has been most difficult.
Continuing support in a protracted crisis would strain the narrow revenue base of most EAP countries.
Mixed prospects for recovery: Successful containment of the disease in some countries is leading to a revival of domestic
economic activity. But the EAP region’s economy is heavily dependent on the rest of the world, and global demand remains
subdued. Trade will see a revival as global economic activity gradually resumes, but tourism is unlikely to recover soon.
Though short-term capital has returned to the region, global uncertainty still inhibits domestic and foreign investment.
The capacity of financially strained governments to stimulate the economies is also limited. The region is forecast to grow
by only 0.9 percent in 2020. Whereas China is forecast to grow by 2.0 percent—because it has kept new infections at a low
rate since early March, prioritized the revival of production, and increased public investment—the rest of the EAP region
is projected to contract by 3.5 percent on average in 2020. Prospects for the region are brighter in 2021, with growth
expected to be 7.9 percent in China and 5.1 percent in the rest of the EAP region, based on the assumption of continued
recovery in the region and normalization of activity in major economies, linked to the possible arrival of a vaccine.
However, for all economies in the region, output is projected to remain well below pre-pandemic projections for the next
two years. The outlook is particularly dire for some highly exposed Pacific Island countries where output is projected to
remain about 10 percent below precrisis levels by late-2021.
Adverse impact on inclusive growth: COVID-19 will have a lasting impact on inclusive longer-term growth by hurting
investment, human capital, and productivity. Public and private indebtedness, along with worsening bank balance sheets
and increased uncertainty, are likely to inhibit public and private investment, as well as pose a risk to economic stability.
Sickness, food insecurity, job losses, and school closures could lead to the erosion of human capital and earning losses
that last a lifetime. Firm closures and disruption in firm-worker relationships could hurt productivity through a loss of
valuable intangible assets. The disruption of trade and global value chains could hurt productivity by leading to a less
efficient allocation of resources across sectors and firms, and by dampening the diffusion of technology. Left unremedied,
these consequences of the pandemic could reduce regional growth over the next decade by 1 percentage point per year.
xii Overview

The poor will be disproportionately disempowered because of their lower level of access to hospitals, schools, jobs, and
finance. The adverse effects on growth and distribution may be partially offset by the COVID-19-induced acceleration in
digital technologies, which could boost productivity and improve access to services for the poor.
An integrated view of policy: Policy choices to contain disease surges and provide relief today would ideally be
informed by how they will affect recovery and growth tomorrow. And policy choices in one area, say health, will have an
impact on goals in other areas, like the economy. Governments face difficult trade-offs. Significant expenditure on relief
or a consumption-supporting stimulus may leave an indebted government less equipped to invest in infrastructure, and
hence growth. And how governments distribute the burden of public debt across individuals and over time—through
indirect taxes, income and profit taxes, inflation, or financial repression—will matter for both growth and distribution.
The crisis has shown that taking a dynamic view could help EAP governments make choices today that soften trade-offs
tomorrow in seven key areas:
• Building capacity for smart containment—including to test, trace, and isolate—would help contain disease
surges with more targeted and less economically disruptive measures. For example, preliminary analysis
suggests that open public testing, including of asymptomatic people, could reduce the number of infections by
10 percent in a month. At the same time, cooperating internationally to incentivize the development of a vaccine
and preparing to distribute it efficiently and fairly would contribute to social stability and facilitate economic
recovery.
• Initiating fiscal reforms could allow greater spending on relief without sacrificing public investment. The
budget constraint is difficult because revenue mobilization is exceptionally low in the EAP countries other
than China—only 18 percent of GDP on average, compared to 25 percent in other developing economies
and 36 percent in advanced economies. And the greater reliance on indirect taxes, which represent more than
50 percent of government revenue in several countries, has amplified the revenue loss in a crisis in which
consumption has contracted sharply. Large fiscal deficits in EAP are projected to increase government debt on
average by 7 percentage points of GDP in 2020. High and growing private debt constitutes an additional indirect
risk for government finances. Widening the tax base with more progressive taxation of income and profits and
less wasteful spending on regressive energy subsidies, in some cases over 2 percent of GDP, could make recovery
more inclusive and sustainable.
• EAP governments will need to maintain hard-won reputations for financial prudence in the face of increasing
financing needs. Even though EAP governments are largely financing deficits through domestic borrowing, some
are also inducing central banks to buy sovereign bonds. Pursued beyond a point, such actions could undermine
central bank independence and inflation control which have been crucial for macroeconomic stability in the
region. Overreliance on the banking system as a conduit for extending support could also pose risks. The
available data suggest that EAP banks are relatively well-capitalized, but nonperforming loans have increased
despite relaxed prudential measures and permissive accounting rules. While these policies may be necessary
today, credible commitments to transparency and to early restoration of financial discipline could help mitigate
the risk of financial instability.
• Social protection has a triple role: mitigate the immediate impact of the crisis; help workers reintegrate as
countries recover; and prevent long-term harm to human capital. Widening social protection to cover all
existing and the new poor, combined with investment in the infrastructure of delivery, would ensure that help
reaches people when they need it. Malaysia, with a universal national ID system, wide mobile phone coverage,
and high financial inclusion, accomplished a large-scale cash transfer with a 99 percent implementation rate
Overview xiii

that reached more than 10 million beneficiaries, or one-third of the total population. In contrast, many Pacific
Island countries have underdeveloped social protection systems and need to institute flexible coverage that can
adapt and be scaled up in response to large shocks.
• Devising strategies for smart schooling to protect students, staff, teachers, and their families—sanitary
protocols, social distance practices, student re-enrollment—could prevent long-term losses of human capital,
especially among the poor. School closures due to COVID-19 could result in a loss of 0.7 learning-adjusted years
of schooling in EAP countries. As a result, the average student in the region could face a reduction of 4 percent
in expected earnings every year of their working lives.
• Support for firms is needed to prevent bankruptcies and unemployment without unduly inhibiting the efficient
reallocation of workers and resources to firms and sectors. Most EAP governments have extended support to
firms but access was uneven, with only 10–20 percent of firms in some surveyed countries receiving assistance.
Support must be based as far as possible on transparent and objective criteria related to not just past performance
or current pain, but the potential to thrive in the future. And to avoid assistance being prolonged unduly,
governments can commit to phasing it out by linking it to observable macroeconomic indicators of recovery.
Many micro and informal firms operate outside of financial and tax systems, are hard to reach, and are best
supported through social protection interventions.
• The crisis is accelerating four existing trends in trade: early recovery in the EAP region is reinforcing regionalization;
aversion to overdependence in supply chains is encouraging the relocation of global value chains (GVCs) from
China; digitization is boosting servicification; and a craving for self-reliance is increasing protection in some
areas, even as countries liberalize in others. EAP countries need to deepen trade reform, especially of still-
protected services sectors—finance, transport, communications—to enhance firm productivity; avert pressures
to protect other sectors; and equip people to take advantage of the digital opportunities whose emergence the
pandemic is accelerating. China alone could add 0.5 percent to its own and regional GDP by extending the
preferences in its bilateral agreement with the United States to all countries, while embarking on a program of
deeper domestic reform and market opening.
xiv Overview

From Containment to Recovery

The COVID-19 pandemic has inflicted multiple shocks on the EAP region: the disease, domestic economic
shutdowns, and reverberations from the rest of the world (Figure 1). Today, the domestic picture is positive with
qualifications. The pandemic has so far been contained in part of the region, but not in Indonesia and the Philippines,
and still threatens other countries, most recently Myanmar (Figure 2). The shutdowns have been mostly phased out and
replaced by more targeted measures. However, the international picture is cloudy, albeit with a slim silver lining. The
region is exceptionally exposed to a world in difficulty, where tourists fear travel and investors balk at uncertainty. After
a precipitous fall, trade is beginning to recover, and after a dramatic exit, short-term capital has quietly returned to the
region. Governments are seeking to mitigate the economic pain but at the cost of growing fiscal strain.
Figure 1. COVID-19 has hit countries with direct and indirect shocks which governments are trying to mitigate
Government containment
COVID-19 shock
strategy
Loss of earnings due to

illness, health care costs Economic shutdowns,
social distancing
Country economic
conditions
Contraction of
trade, tourism, FDI, Relief to firms and
remittances households
Shock to the rest of the Government economic

world response
Source: World Bank Staff elaboration.
Figure 2. EAP countries have so far suffered less from COVID-19, and the disease has been largely contained, except in Indonesia
and the Philippines
a. Total confirmed cases b. New confirmed cases

(per million) (7-day moving average)
4
Thousands
0
6-Jan
25-Jan
13-Feb
3-Mar
22-Mar
10-Apr
29-Apr
18-May
6-Jun
25-Jun
14-Jul
2-Aug
21-Aug
9-Sep
Indonesia
Philippines
China
Rest of developing EAP
Sources: Oxford University, Our World in Data, https://ourworldindata.org/coronavirus; World Bank staff elaboration.
Note: Last data point September 10.
From Containment to Recovery 1

Containing COVID-19
Many EAP countries have been relatively successful in containing the spread of the virus. However, the number
of new cases is still high in Indonesia and the Philippines, and beginning to increase in Myanmar (see also Annex A1 for
a comparison of the COVID experience of EAP countries). Other countries in the region have also experienced sporadic
spikes in the number of new cases in certain localities. Our understanding of what has worked in the battle against
COVID-19 is still evolving. Box 1 presents some suggestive empirical evidence that lockdowns, smart containment
based on extensive testing, and economic measures such as sick pay have helped contain the disease, Annex A2, which
compares the strategies of Indonesia, the Philippines, and Vietnam reveals the importance of early and decisive action
as well as of clear and consistent communication.
Box 1. The correlates of successful containment
The measures taken to contain COVID-19 across the world range from lockdowns and curtailing travel; to testing
tracing, isolating, or quarantining; and providing economic support, such as sick pay to encourage sick people to
stay at home. EAP economies have, on average, employed more stringent mobility restrictions and more tests per
case (an indicator of contact tracing) than the rest of the world (Figure B1.1).
Figure B1.1. Comparing containment measures between EAP and rest of the world
3
Gap between EAP and rest of the world
1
(z-score)
–1
–2
–3
Total COVID Mobility Stringency Testing Tests
COVID cases, index index per million per
cases August case
Disease Response Government action
Sources: EAPCE staff, based on data from google; Oxford Covid-19 Government Response Tracker 2020.
Note: The figure depicts the difference in means between the EAP region countries and the rest of the world using standardized z-score variables that allow comparisons in terms of standard deviations. Dashed
lines denote 95 percent confidence intervals.
These measures are associated with a slower spread of COVID-19 infections (Figure B1.2). However, there is
significant heterogeneity in the time frame over which different policies are effective. A more stringent lockdown
policy is almost instantaneously effective in reducing cumulative growth of infected cases. In contrast, the
effectiveness of a “smart-containment” policy such as open testing is observed with a lag. Economic support
(continued)
2 FROM CONTAINMENT TO RECOVERY

(Box 1. continued)
Figure B1.2. The impact of lockdowns, testing, and economic support over time on the spread of COVID-19
a. Impact of more stringent lockdown b. Impact of open testing policy
0.2 0.1
0
0
Change in cumulative
infection growth rate
–0.2
Change in cumulative
infection growth rate
–0.4 –0.1
–0.6 –0.2
–0.8
–0.3
–1.0
–1.2 –0.4
1 10 20 30 40 50 60 1 10 20 30 40 50 60
Days since an increase in lockdown stringency index Days since open testing policy is implemented
Source: EAPCE staff research, based on data Oxford Covid-19 Government Response Tracker 2020.
Note: Bar heights represent the estimated effects of government introducing an open testing policy on cumulative infection growth rate. A negative value is interpreted as a reduction in the cumulative growth
rate of COVID-19-reported cases as a result of the policy introduction. The lockdown stringency index is a rescaled (0–100) average of sub-indicators, with adjustments for whether restrictions are targeted or
general: closing of schools, workplaces, and public transport, as well as restrictions on public events, gathering sizes, and domestic and international travel. Testing policy is a binary indicator which equals
1 if testing is open and available to all and 0 otherwise. Whiskers represent 95 percent confidence intervals of the estimates. Each regression includes time and country fixed effects. The dependent variables
are standardized as units of deviation from the global mean.
policies, such as income support for lost pay, which encourages sick people to stay at home, are also associated
with reduction in infection growth, demonstrating the benefits of an integrated policy approach to containment.
It is relevant that countries like China, Malaysia, and Vietnam, imposed lockdowns relatively early (though in
some cases even earlier action would have been desirable) and then transitioned to a testing-based strategy,
accompanied by public information campaigns to encourage precautionary behavior. Less successful countries
were not able to implement early comprehensive shutdowns (Demirguc-Kunt et al. 2020), build the requisite
testing capacity, and induce the necessary behavioral change.
Exposure to a World Economy in Trouble

The EAP countries are exposed to the world economy through flows of goods, services, labor, and capital
(Figure 3). Vietnam stands out in terms of its share of exports in GDP, though the share is only half as large when
expressed in value added terms to adjust for the importance of imported inputs. China’s dependence on exports has
halved since 2006 to only about 18 percent of GDP, comparable with the relatively low exposure of Indonesia. The
latter economies may be less affected by sluggish global demand in the wake of the COVID-19 pandemic, compared to
Cambodia, Malaysia, Mongolia, and Thailand which are more reliant on exports. The Philippines, Thailand, and most
Pacific Island economies depend more on services exports and are more exposed to travel disruptions.
The global economy has sunk into a major recession. The COVID-19 pandemic crisis shares some similarities with
other crises, such as those stemming from natural hazards, wars, macroeconomic mismanagement, and international
financial meltdowns (Loayza et al. 2020; World Bank 2020a). However, this pandemic crisis arguably combines the worst
features of all these crises: a simultaneous supply and demand shock; domestic, regional, and global in scope (Figure 4);

Figure 3. EAP countries have strong links to the rest of the world through flows of goods, services, labor, and capital
a. Exposure to trade and remittances b. Capital flow exposure
120
20
90 15
Percent of GDP
10
Percent
60
5
30
0
0 –5
Vietnam
Cambodia
Malaysia
Thailand
Mongolia
PNG
Philippines
Lao PDR
Myanmar
Indonesia
China
Timor-Leste
Marshall Islands
Tonga
Vanuatu
Palau
Samoa
Fiji
Solomon Islands
FSM
Tuvalu
Nauru
Kiribati
Mongolia
Cambodia
Lao PDR
Vietnam
Myanmar
PNG
Indonesia
Philippines
Malaysia
Thailand
Timor-Leste
China
Fiji
Marshall Islands
Solomon Islands
Samoa
Tonga
Kiribati
East Asia Pacific Islands East Asia Pacific Islands
Goods exports Foreign direct investment

Services exports Portfolio equity
Remittances Portfolio debt
Source: World Bank.

Note: Unweighted average over 2017–19 period or three latest years available.
Figure 4. Much of the world has sunk into an unprecedented recession
(proportion of economies in recession and the contraction in GDP per capita growth)
Percent (red) Percent (orange)
100 8
COVID-19
The Great Depression 7
80
GDP per capita growth contraction

Exchange rate crisis
Post WWI and Depression 6
Oil price shock, global and end of Cold War
Economies in recession
inflation, monetary policy, Global

WWII 5
60 and Latin America debt crisis financial
Bank panic crisis
4
Oil price shock
40
3
2
20
1
0 0
1871
1876
1885
1893
1908
1914
1917–21
1930–33
1938
1945–46
1975
1982
1991
2009
2020
Sources: Authors’ figure adapted from World Bank 2020a. Data from Inklaar et al. 2018; Kose et al. 2019, 2020.
Note: 2020 uses forecast data. Shaded areas refer to global recessions. Sample includes 183 economies though the sample size varies significantly by year. For crises that last for more than a year, the annualized average
of the cumulative contraction of GDP per capita growth during the crisis is used.

Figure 5. COVID-19 has created exceptional uncertainty
World Uncertainty Index
COVID-19
60,000 U.S.-China
trade tensions,
U.S. fiscal cliff and
50,000 Brexit, and
sovereign debt
political
crisis in Europe
tensions
40,000 Iraq war and
Index
outbreak of SARS
U.S. recession
30,000
and 9/11
20,000
10,000
0
1960
1962
1965
1967
1970
1972
1975
1977
1980
1982
1985
1987
1990
1992
1995
1997
2000
2002
2005
2007
2010
2012
2015
2017
2020
Source: Figure reproduced from Ahir et al. 2018.
Note: The index is constructed by text-mining country reports published by the Economist Intelligence Unit (EIU) for words such as “uncertainty” and its variants. It is then normalized according to the total number of
words in each report.
a projected long duration; and a high degree of uncertainty (Figure 5). It has been described as “the most adverse
peacetime shock in over a century” (World Bank 2020a) and is bringing about the largest contraction in global GDP per
capita since World War II—a 5.6 percent decline in the first half of this year.
The Economic Impact

As a consequence of the domestic and foreign supply and demand shocks, economic activity in the region
has declined in the first half of 2020 more sharply than in decades (Figure 6). Regional output contracted by
Figure 6. Domestic and external shocks have sharply reduced growth in the region
20
COVID-19
15 shock
10
5
Percent
–5
China's Asian Global

–10 Tangshan
Cultural Financial Financial
earthquake Crisis Crisis
–15 Revolution
1965
1967
1969
1971
1973
1975
1977
1979
1981
1983
1985
1987
1989
1991
1993
1995
1997
1998-Q1
1998-Q2
1998-Q3
1998-Q4
1999
2001
2003
2005
2007
2008
2009-Q1
2009-Q2
2009-Q3
2009-Q4
2010
2012
2014
2016
2018
2019
2020-Q1
2020-Q2
China EAP excluding China
Source: World Bank Economic Monitoring.

Note: Year on year growth.

2.2 percent (y/y) in the first half of 2020, reflecting the impact of pandemic-related lockdowns and a deep contraction
in exports. The impact on regional economies was uneven, with output in China contracting by 1.8 percent and shrinking
by 4.0 percent on average in the rest of the region.
Box 2. The correlates of the impact on economic growth
We would expect four country-specific factors to impact growth in the first half of 2020: the spread of COVID-19,
the measures taken to contain its spread, the exposure to the global recession, and the capacity of governments
to provide fiscal support. Measures that have helped contain the disease in the EAP economies, such as lockdowns
and testing and tracing, can have different effects on economic activity (Figure B2.1). Lockdown measures would
negatively affect economic growth, and more extensive testing and tracing (smarter containment) could allow
more economic activity. In addition, countries reliant on trade, tourism, and travel are likely to experience larger
contractions given the global recession. Large fiscal imbalances and high debt levels could limit fiscal space for
support. EAP economies appear to have larger services sectors, and to be more dependent on external demand
compared to the rest of the world (World Bank 2020b).
Figure B2.1. Comparing correlates of growth between EAP and rest of the world
2
Gap between EAP and rest of the world
1
(z-score)
–1
–2
COVID cases, Testing per Tests per Stringency Gross debt Fiscal Domestic Exports and Travel and
first-half million case index position balance value added remittances tourism
(Oxford) of exports
Disease Government action Fiscal capacity (% GDP) Exposure (% GDP)
Source: EAPCE staff research, based on data from World Development Indicators; Oxford Covid-19 Government Response Tracker 2020.
Note: The figure depicts the difference in means between the EAP region countries and the rest of the world using standardized z-score variables that allow comparisons in terms of standard deviations. Dashed
lines denote 95 percent confidence intervals.
Countries that had more cases of the disease, imposed more stringent lockdowns, depended more on earnings
from tourism, and had more indebted governments, experienced a greater decline in GDP growth during the
first half of 2020 (Figure B2.2). Testing is positively and significantly correlated with growth outcomes, even
after controlling for the level of infection and the stringency of lockdowns policy. More testing may have infused
greater confidence in people to step out and engage in economic activity.
(continued)

(Box 2. continued)
Figure B2.2. The impact of the disease, containment strategies, external exposure, and fiscal capacity on economic growth
1
Marginal effect on GDP growth
–1
–3
–5
Total cases Lockdown Total tests Duration of Tourism Exports Gross debt
(per mil) stringency (per million) open (% GDP) (value, (% GDP)
testing added,
% GDP)
Sources: EAPCE staff research, based on data from World Development Indicators; Oxford Covid-19 Government Response Tracker 2020.
Note: The sample includes 49 countries that have published GDP growth data for Q1 and Q2 2020. The dependent variable is GDP growth in the first half of 2020 relative to the same period in 2019. All
explanatory indicators are standardized and expressed in units of standard deviation from global median. Total cases per million and total tests per million are included in log values. Bar heights represent
the sizes of the estimated coefficients. Whiskers represent 90 percent confidence intervals.
Regional growth was pulled down by shrinking private consumption and investment, and by contracting
manufacturing and services. Private consumption was hit by declining incomes, mobility restrictions, and an increase
in precautionary savings. Private investment was dampened by the contraction in domestic and external demands, as
well as the increase in uncertainty. Social distancing created a sectoral pattern of contraction not seen in past crises.
The sharpest output declines are in services rather than manufacturing, while agriculture remains relatively resilient
(Figure 7). In China, where growth bottomed out in 2020-Q2, the recovery was uneven, driven by public investment and
net exports, while private investment and consumption remained sluggish. These developments reflected a fiscal policy
response predicated on public investment and on a mitigating impact on firms, with relatively limited direct support to
household incomes (Box 3).
In most countries, workers in services and manufacturing sectors were hit hardest. Due to lockdowns and shrinking
demand, job losses were more prevalent among those working in accommodation and food services, transportation,
construction, and manufacturing (Figure 8). Informality rates tend to be higher and the ability to work from home
tends to be lower in these activities. In countries like Cambodia, some of the workers who lost jobs in services and
manufacturing sought refuge in the less affected agricultural sector.

Figure 7. GDP growth was pulled down by shrinking private consumption and investment, and by contracting manufacturing
and services
GDP growth by expenditure categories GDP growth by industrial sectors
10 5
5
0 0
Percent
–5 –5
Percent
–10
–15 –10
–20
–15
–25
Q1-2020
Q2-2020
Q1-2020
Q2-2020
Q1-2020
Q2-2020
Q1-2020
Q2-2020
Q1-2020
Q2-2020
–20
Q1-2020
Q2-2020
Q1-2020
Q2-2020
Q1-2020
Q2-2020
Q1-2020
Q2-2020
Q1-2020
Q2-2020
Q1-2020
Q2-2020
China Indonesia Malaysia Philippines Thailand
China Indonesia Malaysia Philippines Thailand Vietnam
Net exports
Government consumption Tertiary industry
Gross capital formation Secondary industry
Private consumption Primary industry
Sources: Haver Analytics; World Bank.

Note: For China, consumption includes private and government consumption.
Box 3. COVID-19 and rebalancing China’s economy
China’s recovery has been fast, but the pattern reveals underlying fragility and emerging imbalances. With
containment measures largely removed, the supply side has rebounded quickly. On the demand side, the recovery
was driven by public investment and net exports. Meanwhile, private consumption and private investment have
trailed, reflecting still dampened investor and consumer confidence (Figure B3.1). Subdued domestic demand,
low commodity prices, and limited outbound tourism have led imports to contract even as exports surged. The
current account balance to nominal GDP ratio surged to 3.4 percent in 2020Q2, the highest level since 2012.
This recovery path partly reflects a fiscal policy response focused on mitigating impacts on firms and boosting
public investment. In contrast, support to households and consumption has been relatively limited, despite some
measures to scale up social assistance, unemployment benefits, and social pensions. While supporting a short-
term rebound, an imbalanced recovery path poses risks to China’s long-standing objective of rebalancing the
economy from investment and export driven growth toward a more consumption driven growth. Such rebalancing
would make China’s recovery more sustainable, reduce external imbalances, and hence contribute to lowering
international tensions.
(continued)

(Box 3. continued)
Figure B3.1. Reversed rebalancing
Quarterly real GDP growth—demand side contributions

8
4 4.18
2
Percent
0.50
0
–1.59
–2
–4
–6
2016-03
2016-06
2016-09
2016-12
2017-03
2017-06
2017-09
2017-12
2018-03
2018-06
2018-09
2018-12
2019-03
2019-06
2019-09
2019-12
2020-03
2020-06
Final consumption Gross capital formation Net exports
Source: Haver Analytics.

Note: Y/y growth.
Figure 8. The contraction led to a loss of jobs in services and manufacturing
Changes in employment status from before to after the COVID-19 crisis, by precrisis subsector
Construction 29 15
Transportation and storage 33 11
26
Agriculture
28
Accommodation and food service 30 12 Agriculture

Education 29 8
Human health and social work activities 25 11
15
Manufacturing 29 7 Industry
Other service activities 25 8

22
Industry
Mining and quarrying 22 10
Wholesale and retail trade 22 7

22
Not working
Electricity, gas, water supply, waste, sewerage 16 3
Financial, insurance, real estate 17 2
Agriculture, forestry and fishing 14 4

51
Professional, scientific, administrative, information 12 6 Service

38
Public administration and defense 7 3 Services

0 10 20 30 40 50
Percent of respondents working precrisis
Lost job since crisis Switched jobs since crisis
Source: EAP High frequency phone surveys, first round.

Note: Mongolia does not report on job switches. Sample includes Cambodia, Indonesia, Lao PDR, Mongolia, Myanmar, Papua New Guinea, and Vietnam. Population numbers are in millions of individuals.

The employment and earning impacts of the pandemic have been large and widespread. Firm sales in EAP
countries are on average 38 to 58 percent lower in April or May 2020, compared to the same month in the previous year
(Figure 9). The losses are widespread, even for countries such as Vietnam that have successfully contained the pandemic.
Larger firms seem to be recovering faster than SMEs—with SMEs both more vulnerable to the crisis and less able to
adapt by going digital. The monthly sales of SMEs have fallen by 7 to 23 percentage points more than larger firms in
EAP countries. Both wage employees and those working in family businesses, many of which are in the services sector,
have experienced significant income declines.
Figure 9. Firm sales and household earnings mirror the macroeconomic contraction
a. Drop in monthly sales (vs. prior year) reported by micro, b. Share of households with earning losses from either wage or
SME, and large firms in selected EAP countries nonfarm family business sources
0 100
85
–10 79 79
Percent of households with 80
–20 66
wage/business income
60 59
53
–30 –29
Percent
–40 –37 –37 40

33
–42
–44
–50 –49
–51 –51 20
–52 –53
–56
–60 –58 –58
–59 –60
0
Myanmar
5/18–6/3
Indonesia
5/1–5/17
Cambodia
5/1–5/17
PNG
6/17–7/2
Mongolia
5/22–6/2
Lao PDR
6/20–7/16
Vietnam
6/5–7/8
–70
Cambodia Indonesia Myanmar Philippines Vietnam
Micro SME Large
Sources: Business Pulse Surveys; EAP high frequency phone surveys, first round.
Note: A. The survey was conducted in May for Myanmar; June for Cambodia, Indonesia, and Vietnam; and July for the Philippines. Monthly sales refers to firm sales in the last completed month (in the case of Myanmar)
or the last 30 days (other countries) prior to the survey, relative to the same period in 2019. Micro is defined as firms having less than 5 employees, SME as having 5–99 employees, large as having 100+ employees. In
the case of the Philippines, the change is between July and April, when the Enhanced Community Quarantine (ECQ) was adopted. B. Survey dates are indicated underneath the country names. In Mongolia and Cambodia,
wage losses are reported for the whole household, not only heads of households.
Poverty in developing East Asia and Pacific could increase for the first time in 20 years. The COVID-19 pandemic
is expected to reverse the sustained trend of poverty reduction in the region. Prior to the onset of COVID-19, 33 million
people were projected to escape poverty in 2020 based on the upper-middle-income class poverty line (US$5.50/day,
2011 PPP). Instead, based on the latest GDP forecasts and past growth to poverty elasticities, poverty is likely to be
1.6–1.8 percentage points higher than previously projected. This translates into between 33 to 38 million more poor
people than in the pre-COVID-19 scenario. While poverty in China is projected to decline, poverty in the rest of the
region is projected to increase (Figure 10).

Figure 10. Up to 38 million more people are being pushed into poverty as a result of the pandemic
a. Change in number of poor in China b. Change in number of poor in EAP excluding China
0
20
Change 2019–2020, millions
Change 2019–2020, millions

12.6
–10 –8.1 10 9.5
–9.6
–20 0
–25.0
–10 –8.1
–30
Baseline Lower case Baseline Lower case
Pre-COVID-19 2020 forecast Pre-COVID-19 2020 forecast
scenario scenario
Source: World Bank staff estimates.

Note: Poverty estimates are based on growth forecasts, population projections, and historical growth elasticities of poverty. US$5.50/day (2011 PPP) indicates the poverty line for upper-middle-income countries. The
baseline and lower-case forecasts are as of September 17, 2020.
At the peak of the crisis, up to 20 of the school systems in EAP were affected by closures. Schools closed in China,
Mongolia, and Vietnam in January; several other countries followed in mid-to-late March. The data indicate that every
student in the region was out of school at one time or another since January 2020, and many for significant durations
(Figure 11). Between January 1 and August 31 of this year, schools in the region were closed for an average of 2.7
months or 46 percent of the total time they would have otherwise been in session.
Figure 11. Students in East Asia and the Pacific have lost significant school time due to COVID-19
Number of countries with schools closed or open with limitations due to COVID-19 and the percentage of the region’s students affected
100 20
80
15
Number of countries
Percent of students
60
10
40
5
20
0 0
Jan-20 Jan-20 Feb-20 Mar-20 Apr-20 May-20 Jun-20 Jul-20 Aug-20
Schools open with limitations

Schools closed (nationwide or selected areas)
Countries nationwide, selected areas, or open with limitations (number of countries, RHS)
Source: Cloutier et al. (2020), based on Education COVID monitoring database and inputs from country task teams.
Notes: “Schools closed nationwide” means that all schools in the country are closed; “Schools closed in selected areas” means that schools are open in some geographical areas and closed in others; “Open with limitations”
means that schools in the country are open but serving only certain grades or serving students on a rotating schedule.

The Government Response

Government stepped in to help households smooth consumption and firms avoid bankruptcies. The average size
of fiscal measures announced to date in developing EAP, estimated at around 5 percent of GDP, was comparable to the
other developing regions but varied considerably in size and breadth across the developing EAP countries (Figure 12).
Nearly two-thirds of these income and revenue measures were directed at individuals to cushion the fall in household
incomes. Such measures were broadbased, utilizing social insurance to protect formal sector workers and social assistance
to support the poor and vulnerable, as well as labor market interventions. Additional allocations in response to COVID-19
have been higher than the amounts spent on social assistance programs prior to the crisis in most countries. One
consequence of this large and rapid response has been that many governments in the region have found it hard to scale
up their narrow social protection programs to reach the new COVID-19 poor in the middle class and the informal sector,
groups that fall outside the scope of countries’ traditional social safety nets (Mason et al. 2020).
Figure 12. To stem the economic pain, governments provided fiscal support to firms and households
a. Fiscal support b. Income support and revenue exemptions
14 7
12 6
10 5
Percent of GDP
Percent of GDP
8 4
6 3
4 2
2 1
0 0
Thailand
Mongolia
Malaysia
Cambodia
China
Philippines
Indonesia
Vietnam
Myanmar
Lao PDR
Mongolia
Thailand
Malaysia
China
Philippines
Cambodia
Indonesia
Vietnam
Myanmar
Additional spending on income support and revenue measures Individuals—additional spending on income support
Additional health-related spending Individuals—revenue measures
Other spending Firms—additional spending on revenue support
Loans, equity, and guarantees Firms—revenue measures
Sources: International Monetary Fund June 2020 World Economic Outlook Update; World Bank staff estimates.
Note: Data are as of September 12, 2020. Data refer to general government, except for Indonesia, Malaysia, and the Philippines, which refer to central government only. Income and revenue support measures include
direct transfer payments; reduction or deferral of payment commitments; foregone revenue from tax cuts, credits, and exemptions; and other financial assistance to individuals and firms.

The speed and scope of social protection responses have varied considerably across countries. Several countries in
the region, including China, Malaysia, and Thailand, appear to have been able to mobilize their responses quickly. Other
countries (e.g., Myanmar, Vietnam) announced ambitious plans early but appear to have been slower in implementing
them. And still others—with few existing programs and less developed social protection systems—have mounted little
or no COVID-specific response (e.g., Lao PDR). High-frequency data collected by the World Bank between May and
early July 2020 highlight cross-country variation in government support to vulnerable groups since the start of the
crisis (Figure 13). Beyond cross-country differences, the data also indicate that, at the time of the surveys, programs
had reached a higher share of those in the bottom 40 percent of the population—the traditional targets of social
assistance—than those whose incomes fell as a result of the pandemic.
Figure 13. Coverage of programs providing support to households during the pandemic has varied across countries
a. Share of households experiencing a negative income b. Share of households in the bottom 40 percent of the
shock that received government assistance distribution that received government assistance
100 100
80 80
60 60
Percent
Percent
40 40
20 20
0 0
Mongolia Indonesia Vietnam Lao PDR Mongolia Indonesia Vietnam Lao PDR
Source: EAP high frequency household phone survey, first round.

Note: Share of households receiving government assistance at the time of the first-round survey. Assistance programs include existing and new programs that were in place at the time of the survey flagged as part of
the emergency response to the pandemic. Dates for the first round of data collection for each of the four countries in the figures are as follows: Indonesia (May 1–17, 2020), Lao PDR (June 20–July 17, 2020), Mongolia
(May 22–June 2, 2020), and Vietnam (June 5–July 8, 2020).
Support has also not reached many firms. Business Pulse Survey data show that only a small share of firms received
direct government support. The share varies substantially by country, ranging from less than 10 percent in the case of
Indonesia to around 20 percent in the Philippines and Vietnam (Figure 14). In particular, formal financial institutions
may not reach many small and medium enterprises (SMEs), and most informal and micro firms, since they are not part of
the tax or financial system. Lack of awareness is also a major barrier to firms taking up available COVID support (Apedo-
Amah et al. 2020). In Indonesia, the majority of firms were unaware of public support.
Governments have eased monetary policy and increased support to the financial sector (Figure 15). In China, the
People’s Bank of China (PBOC) has announced more than 2.2 percent of GDP to support the financial sector and firms.
In other EAP economies, central banks have cut policy rates and lowered reserve requirements. Some central banks, such
as in Indonesia, have directly purchased government bonds, raising market fears of erosion of hard-won central bank
independence. Financial sector support has covered both banks and nonbank financial intermediaries.

Figure 14. A fraction of firms received policy support
Indonesia 7 52 4 5 6 26
Vietnam 19 27 20 37 3 1
Philippines 22 20 21 15 16 3
Percent
Has access to policy support No access: not aware of policies

No access: application too difficult No access: not eligible
No access: applied but not received No access: other reasons
Source: Business Pulse Surveys.

Note: The survey was conducted in June for Indonesia and Vietnam, and July for the Philippines.
Figure 15. Governments have also loosened monetary policy and increased support for the financial sector
a. Monetary policy support measures b. Financial sector support measures
12 3 50
Number of measures
40
8 2
Percentage points
30
Percent of GDP
4 1 20
10
0 0
0
Philippines
China
Indonesia
Malaysia
Thailand
Myanmar
Veitnam
Mongolia
PNG
Cambodia
Lao PDR
Fiji
SLB
Samoa
FSM
–4 –1
Mongolia
Myanmar
Vietnam
Indonesia
PNG
China
Philippines
Lao PDR
Malaysia
Thailand
East Asia Pacific Islands
Banking sector Liquidity/funding

Latest policy rate Policy rate cut Payment systems Financial markets/NBFI
New asset purchase (RHS) Reserve requirement ratio cut Other
Sources: Haver Analytics; International Monetary Fund Policy Tracker; World Bank staff elaboration.
Note: A. Red bars denote cumulative policy rate cuts since the outbreak. Green lines denote cumulative cuts in reserve requirement ratio. Orange diamonds denote recently announced asset purchases by central banks
in the primary market, expressed relative to respective 2019 nominal GDPs. RHS refers to right-hand side. B. PNG refers to Papua New Guinea, SLB refers to Solomon Islands, and FSM to Federated States of Micronesia.
NBFI refers to nonbank financial institutions.

Prospects for Recovery

Recovery from the present crisis depends on both domestic and external conditions. A key step toward recovery
is resolving the problem that created the crisis. In the present context, sustained revival of domestic economic activity
requires the successful containment of the infections or at least their suppression to a rate that allows transition to less
disruptive “smart containment” strategies. But for countries in the region, the strength of recovery in the rest of the
world also matters, as does the capacity of the government to stimulate economic activity without creating financial
stability risks (Figure 16).
Figure 16. Recovery depends on suppression of the disease, global economic conditions, and state support
Government capacity to
Extent of disease
implement a smart
suppression
containment strategy
Less illness-related earnings
loss and health costs Phase out of economic shutdown,
relaxed social distancing
Country economic
conditions
Revival of trade, Expansionary monetary
tourism, FDI, and fiscal policy
remittances
Strength of recovery in Government capacity to

the rest of the world provide economic stimulus
Developing the capacity to contain outbreaks is vital for recovery. For most countries in the EAP region that
have largely contained the disease, the key public health policy issue is to strengthen their ability to respond to future
outbreaks through more targeted and less disruptive interventions. In this respect, Cambodia, Myanmar, and the PICs,
rank low on the capacity scale, based on the Global Health Security Index. Even though Indonesia and the Philippines are
ranked in the middle of the capacity scale, they still need to find a way of managing COVID-19 (Figure 17).
Figure 17. The capacity to detect and respond to epidemics is uneven across countries
a. Early detection and reporting epidemics b. Rapid response to and mitigation c. Treating the sick and protecting health
of the spread of an epidemic workers
NA
100 100 100
Thailand Thailand
80 Indonesia Malaysia 80 80
Myanmar EAP NA Thailand NA
ECA Malaysia
Cambodia Philippines Indonesia Malaysia
60 60 Myanmar EAP 60
LAC
SA Vietnam ECA IndonesiaEAP ECA
SSA
MENA China Vietnam Philippines China Philippines China
40 40 MENA LAC 40
SSA Vietnam MENA
SACambodia SA LAC
20 20 20 SSA Myanmar
Cambodia
0 0 0
6 7 8 9 10 11 6 7 8 9 10 11 6 7 8 9 10 11
Log of GDP per capita Log of GDP per capita Log of GDP per capita
Sources: Global Health Security Index 2019, Nuclear Threat Initiative, Johns Hopkins Center for Health Security, The Economist Intelligence Unit. EAP: East Asia and Pacific; ECA: Eastern and Central Europe; LAC: Latin
America and the Caribbean; MENA: Middle East and Northern Africa; NA: North America; SA: South Asia; SSA: Sub-Saharan Africa.
Note: The index is scaled from 0 to 100 corresponding to the least to the best performance.

But domestic containment is not sufficient for a full-fledged recovery because the regions’ economies are
integrated into the global economy. Trade is beginning to recover as economic activity gradually resumes in other
parts of the world, but tourism will remain subdued (Figure 18). Global uncertainty still inhibits domestic and foreign
investment, but industry indicators show signs of recovery, and short-term capital is no longer flowing out (Figure 19).
Figure 18. Trade is recovering, and capital flows are stabilizing
a. Exports growth, goods b. Net nonresident purchases of EM stocks and bonds

(values)
20 20
10
0 0
–10
Billion, USD
Percent
–20 –20
–30
–40 –40
–50
–60
–60
–70
Dec-19
Jan-20
Feb-20
Mar-20
Apr-20
May-20
Jun-20
Jul-20
Aug-20
1-Jan
2-Feb
5-Mar
6-Apr
8-May
9-Jun
11-Jul
12-Aug
13-Sep
China China
EAP excluding China Developing EAP excluding China
EMDE excluding China EM excluding developing EAP
Sources: Institute of International Finance; Haver Analytics, World Bank.

Note: A. Year-on-year growth, 2020. Developing East Asia includes Indonesia, Malaysia, the Philippines, Thailand, and Vietnam.
Figure 19. Global economic activity is beginning to recover
a. Global purchasing managers’ indices b. Industrial production
55 10
50
0
Index, 50+ = expansion
45
Percent
40 –10
35
–20
30
–30
25 Jan-20 Mar-20 May-20 Jul-20
20 China
Dec-19 Feb-20 Apr-20 Jun-20 Aug-20 EAP excluding China and Indonesia
Advanced economies
Manufacturing Services EMDEs excluding China
Source: Haver Analytics.

Note: A. Year-on-year growth. Developing East Asia includes Indonesia, Malaysia, the Philippines, Thailand, and Vietnam.

The COVID-19 shock is expected to have an uneven impact across the region.
China and Vietnam are already recovering (Figure 20). China was hit first by the disease but has been able to control
the pandemic and deal with subsequent outbreaks through targeted action (Loayza et al. 2020). China’s dependence
on external markets has diminished: the share of trade in GDP has declined from a peak of 64 percent in 2006 to
36 percent in 2019. Nevertheless, its recovery has in part been driven by a strong rebound in exports, which is leading
to an increased current account surplus, and may lead to a renewal of trade tensions. Vietnam too was able to control
the pandemic at relatively low human and economic costs. Despite its high exposure to trade and deep engagement in
global value chains, it is already beginning to see an economic revival.
Recovery in other countries that have contained the disease is dependent on external conditions. On the health
front, Malaysia and Thailand’s robust health systems seem equipped to deal with future outbreaks, but Thailand is
more vulnerable because it has an older population and denser living conditions. Externally, Malaysia and Thailand are
especially suffering from the drop in exports and tourists, and remain vulnerable to abrupt changes in external financing
conditions. In addition, political uncertainty remains elevated in Malaysia and Thailand. Their recovery is therefore likely
to be slower than that of China and Vietnam.
Cambodia, Lao PDR, and Mongolia have suffered less from the disease, and their lockdowns have been relatively
mild but are also vulnerable to the global recession. They have young populations, but the risk of infection is present
because of poor living conditions and overcrowded dwellings. Dealing with outbreaks in some of these countries could
be a challenge because of weaknesses in their health systems. Their main vulnerability, however, resides on the external
front. All depend on tourism, trade, and external financing to varying degrees. They all have large current account
deficits and sizeable external debt obligations. For all these countries, domestic economic activity is likely to revive, but
the strength and sustainability of recovery will ultimately depend on external conditions. Myanmar has recently seen a
surge in new cases, which make a fast recovery uncertain.
Indonesia and the Philippines face uncertain prospects. The region’s two most populous countries after China have
not so far succeeded in controlling the pandemic. Indonesia has not imposed strict lockdowns and seems to be relying on
softer measures, while the Philippines has gone on a cycle of repeated strict lockdowns and reopenings. Both countries
have the advantage of young populations but suffer from large informal sectors and poor living conditions for a large
fraction of their population. Indonesia is much less exposed than the Philippines to the rest of the world through trade,
tourism, and remittances. Indonesia’s output is therefore projected to be less affected than that of the Philippines, but
the outlook is uncertain. Indonesia, because of domestic conditions, and the Philippines, because of both domestic and
external conditions, face the prospect of an uneven and volatile economic recovery.
The Pacific Island countries have been largely spared by the pandemic but are highly vulnerable to the global
crisis (Figure 21). They are heavily reliant on tourism, fishing revenues, and international aid. Their capacity to deal
with pandemics is low, and therefore the trade-off between opening to the rest of the world and saving people is sharp.
Some Pacific Island economies may experience more than 10 percent drop in their GDP level in 2020. They are likely to
start on the path of sustained recovery only when global conditions return to normal (Annex Table A2.2).

Figure 20. Output is unlikely to catch up to the precrisis trend
a. China b. Indonesia
140 140
Index, 2018-Q1 = 100

130 130
Index, 2018-Q1 = 100
120 120
110 110
100 100
90
90
80
80
2019-Q1
2019-Q2
2019-Q3
2019-Q4
2020-Q1
2020-Q2
2020-Q3
2020-Q4
2021-Q1
2021-Q2
2021-Q3
2021-Q4
2022-Q1
2022-Q2
2022-Q3
2022-Q4
2019-Q1
2019-Q2
2019-Q3
2019-Q4
2020-Q1
2020-Q2
2020-Q3
2020-Q4
2021-Q1
2021-Q2
2021-Q3
2021-Q4
2022-Q1
2022-Q2
2022-Q3
2022-Q4
Baseline Jan GEP Low case Baseline Jan GEP Low case
c. Malaysia d. Philippines
140 140
130
Index, 2018-Q1 = 100
130
Index, 2018--Q1 = 100
120 120
110 110
100
100
90
90
80
80
2019-Q1
2019-Q2
2019-Q3
2019-Q4
2020-Q1
2020-Q2
2020-Q3
2020-Q4
2021-Q1
2021-Q2
2021-Q3
2021-Q4
2022-Q1
2022-Q2
2022-Q3
2022-Q4
2019-Q1
2019-Q2
2019-Q3
2019-Q4
2020-Q1
2020-Q2
2020-Q3
2020-Q4
2021-Q1
2021-Q2
2021-Q3
2021-Q4
2022-Q1
2022-Q2
2022-Q3
2022-Q4
e. Thailand f. Vietnam
140 140
130 130
Index, 2018-Q1 = 100
Index, 2018-Q1 = 100
120 120
110 110
100 100
90 90
80 80
2019-Q1
2019-Q2
2019-Q3
2019-Q4
2020-Q1
2020-Q2
2020-Q3
2020-Q4
2021-Q1
2021-Q2
2021-Q3
2021-Q4
2022-Q1
2022-Q2
2022-Q3
2022-Q4
2019-Q1
2019-Q2
2019-Q3
2019-Q4
2020-Q1
2020-Q2
2020-Q3
2020-Q4
2021-Q1
2021-Q2
2021-Q3
2021-Q4
2022-Q1
2022-Q2
2022-Q3
2022-Q4

Note: Red and orange lines show quarterly projections of GDP growth. GEP refers to Global Economic Prospects. Baseline refers to a scenario of severe growth slowdown followed by a strong recovery. Lower case refers to
a scenario of a deeper contraction followed by a sluggish recovery.

Figure 21. About four-fifths of the regional economies, including all Pacific Island economies, are expected to contract in 2020
a. Developing East Asia b. Pacific island economies
4 0 Tuvalu
Vietnam Nauru Tonga
China Kiribati Micronesia, Fed. Sts.
2 Samoa Solomon Islands
–5
Myanmar
Marshall Islands
0
Lao PDR
Indonesia Vanuatu
Cambodia –10
–2
Percent
Percent
Mongolia Palau
Papua New Guinea
–4 –15
Malaysia
–6 Timor-Leste
Philippines –20 Fiji
–8 Thailand
–10 –25

Note: Myanmar growth rate refers to fiscal year from October to September.
Implications for Inclusive Growth

COVID-19 will have a significant adverse impact on inclusive longer-term growth (Figure 22). The scars left
by the COVID-19 crisis will hurt investment, human capital, and productivity growth (Figure 23). Public and private
indebtedness, along with worsening bank balance sheets and increased uncertainty, are likely to inhibit public and
private investment. These factors also pose a risk to economic stability. Sickness, food insecurity, job losses, and
school closures could lead to health and learning losses that could last a lifetime. The poor will be disproportionately
disempowered because of worse access to hospitals, schools, jobs, and finance. Bankruptcy of firms and disruption in
firm-worker and firm-firm relationships could hurt productivity by leading to a loss of valuable intangible assets. The
disruption of trade and global value chains (GVCs) could deprive countries of their productivity-enhancing benefits
through the improvement of resource allocation across firms and sectors, and the diffusion of technology. But these
adverse effects on growth and distribution may be partially offset by the COVID-19-induced acceleration in the diffusion
of technologies, which have the potential to boost productivity and improve access to services for the poor. For these
benefits to arise, these technologies must be broadly available.

Figure 22. The COVID-19 shock will hurt growth by inhibiting investment, eroding human capital, and dampening productivity
Public investment limited

Private investment
by fiscal constraints and
inhibited by global
increased public debt
uncertainty and increased
private debt
Country economic
growth
Human capital eroded by Productivity hurt by firm

sickness, food insecurity, closures, plus disruption in
job loss, and education firm-worker relationships,
closures R&D, trade, and GVCs
Source: World Bank staff illustration.
Figure 23. The EAP region was witnessing a productivity slowdown before COVID-19
4
Percent
–1
1991–1996 2003–2008 2013–2018
Labor productivity growth

Capital deepening
Total factor productivity growth
Human capital growth
Sources: Islamaj and Saavedra-Caballero 2020; Asian Productivity Organization; Penn World Table; World Bank Staff elaboration.
Note: Excludes China.

Increasing public and private sector indebtedness
Deteriorating fiscal positions, low revenue mobilization, and a shrinking tax base will reduce governments’
ability to provide relief and invest in public infrastructure if the shock lingers. Large fiscal deficits in EAP
are projected to increase government debt on average by 7 percentage points of GDP in 2020 (Figure 24). In some
countries, like China, the fiscal burden of addressing the impact of COVID-19 also falls on subnational governments.
The region is characterized by several structural weaknesses, including weak revenue generating capacity. Revenue
mobilization is comparatively low in the developing EAP region relative to other EMDEs and high-income economies.
Many commodity exporting EAP countries with relatively high shares of volatile resource revenues have also seen their
government revenues decline sharply over the past decade following the commodity price plunge in 2012. Meanwhile,
most commodity importing EAP countries have continued to rely heavily on indirect taxes, including value added and
trade taxes, which are expected to shrink as the COVID-19 pandemic and the necessary public measures to contain its
spread have resulted in substantial reductions in private consumption and trade.
Figure 24. Fiscal positions are expected to deteriorate and add to government debt
a. Fiscal balance b. Government gross debt
2 100
0
80
–2
Percent of GDP
Percent of GDP
–4 60
–6
40
–8
20
–10
–12 0
Mongolia
PNG
Lao PDR
Myanmar
Indonesia
China
Cambodia
Philippines
Vietnam
Malaysia
Thailand
Mongolia
Lao PDR
PNG
Myanmar
Indonesia
Malaysia
Vietnam
China
Thailand
Philippines
Cambodia
Commodity Commodity Commodity Commodity
exporters importers exporters importers
2019e Projected change in 2020 2019e Projected change in 2020

Note: Estimates refer to general government, except for Indonesia and Malaysia, which refer to central government only.
In some countries, financial instability is likely to be amplified because of the rapid growth in private sector debt
(Figure 25). Private debt has been increasing in many economies in the region. Dependence on domestic debt held by
foreign investors, substantial debt denominated in foreign currencies, and the need to refinance debt in a short time
represent significant sources of vulnerability in several countries across the region. Developing EAP economies are
vulnerable in different ways, for example, through elevated domestic debt (China, Vietnam, Malaysia), private sector
debt (China, Malaysia, Thailand), external debt (Lao PDR, Mongolia, Malaysia, Papua New Guinea, Cambodia); or heavy
reliance on short-term debt (Malaysia; Thailand) (Figure 26; Table 1).

Figure 25. Private debt in EAP has been gradually increasing, driven by households and nonfinancial corporates
a. Total debt b. Nonfinancial corporate foreign currency denominated debt
350 60
300 50
250
Percent of GDP
Percent of total
40
200
150 30
100 20
50
10
0
Q1-2005
Q1-2006
Q1-2007
Q1-2008
Q1-2009
Q1-2010
Q1-2011
Q1-2012
Q1-2013
Q1-2014
Q1-2015
Q1-2016
Q1-2017
Q1-2018
Q1-2019
Q1-2020
0
Mar-05
Dec-05
Sep-06
Jun-07
Mar-08
Dec-08
Sep-09
Jun-10
Mar-11
Dec-11
Sep-12
Jun-13
Mar-14
Dec-14
Sep-15
Jun-16
Mar-17
Dec-17
Sep-18
Jun-19
Mar-20
China Indonesia Malaysia China Indonesia
Philippines Thailand Vietnam Malaysia Thailand
EMDEs EMDEs
Source: Institute of International Finance.

Note: Data shown is for Q1 2020, with the exception of Vietnam; that data availability ends in Q3 2019.
Figure 26. Existing levels of debt are high in some countries but most of the debt is domestic and private
a. Domestic and external debt b. Drivers of debt in EAP
300 350
300
250
250
200
Percent of GDP
Percent of GDP
200
150
150
100
100
50
50
0 0
Mongolia
China
Malaysia
Vietnam
Thailand
Cambodia
Philippines
Lao PDR
Indonesia
Myanmar
PNG
Vanuatu
Somoa
FiJI
Tonga
SLB
Timor-Leste
China
Malaysia
Vietnam
Thailand
Philippines
Indonesia
EMDEs
East Asia Pacific Islands

Nonfinancial corporates
Domestic debt, 2018
External debt, 2018 Households
External debt, 1997 Government
Total debt, 1997 Financial corporates
Sources: Institute of International Finance; World Bank.
Note: Data shown is for Q1 2020, with the exception of Vietnam; that data availability ends in Q3 2019.

Table 1. The region’s economies have been fiscally prudent, but existing vulnerabilities coupled with the size of the shock are a
cause for concern
Government Government Domestic credit Gross external

gross debt Fiscal balance revenue to private sector External debt financing needs
% of GDP % of GDP % of GDP % of GDP % of GDP % of reserves
2020f 2020f 2020f 2019 2019 2020f
China 53 –11.8 25 205 14 26
Indonesia 37 –6.3 10 41 36 46
Malaysia 58 –5.9 16 136 60 84
Philippines 45 –8.7 14 48 23 20
Thailand 49 –5.0 19 116 33 20
Vietnam 56 –6.0 23 110 36 23
Cambodia 30 –10.5 17 97 55 30
Lao PDR 69 –7.6 11 — 86 259
Mongolia 83 –11.4 26 50 226 144
Myanmar 44 –7.1 17 26 22 67
Papua New Guinea 48 –8.1 15 14 70 —
Timor–Leste 17 –30.4 39 16 10 50
Sources: International Monetary Fund; World Bank; World Bank staff estimates.
Note: Cell colors are assigned according to the following criteria: Orange: the country is at the bottom 10th percentile level among EMDEs; Light orange: between the 10th and 25th percentile range; Yellow: between the
25th and 50th percentile range; Light green: between the 50th and 75th percentile range; Green: above the 90th percentile level. Gross external financing needs = current account deficit plus short-term external debt.
Short-term debt includes all debt having an original maturity of one year or less and interest in arrears on long-term debt. Total reserves includes gold. External debt data refers to 2018 for Lao PDR, Myanmar, Timor-Leste
and Vietnam. The interquartile range for gross external financing needs (% of reserves) in EMDEs refers to 2018.
Impact on bank balance sheets
Economic hardship may further worsen banks’ balance sheets. Available data for 2020 suggest that nonperforming
loans (NPLs) and other measures of financial sector strength have deteriorated only slightly in recent months (Figure 27).
However, these data may understate the actual level because COVID-19-related regulatory relaxation and forbearance
may have led to a more lenient classification of poorly performing loans. High levels of NPLs are problematic because
they impair bank balance sheets, depress credit growth, and delay economic recovery (Aiyar et al. 2015; Kalemli-Ozcan
et al. 2015).

Figure 27. Financial institutions in EAP are relatively well capitalized but nonperforming loans are increasing
a. Regulatory capital to risk-weighted assets b. Nonperforming loans to total gross loans
12
40
10
30
8
Percent
Percent
20 6
4
10
2
0
0
Cambodia
China
Indonesia
Malaysia
PNG
Philippines
Thailand
Vietnam
Fiji
Cambodia
China
Indonesia
Malaysia
Mongolia
PNG
Philippines
Thailand
Vietnam
Fiji
2007–2008 2009–2010 2007–2008 2009–2010
2019-Q4 2020 (latest) 2019-Q4 2020-Q2 (latest and forecast)
EMDEs EMDEs
Source: International Monetary Fund Financial Soundness Indicators.

Note: Latest available data. Patterned areas show estimates for NPLs based on equations developed by Jakubík and Reininger (2013) using a dynamic panel approach which incorporates macroeconomic fundamentals
as determinants of NPLs.
Long-term effects on human capital
If schools are closed for an additional four months, beyond the closures experienced from January to August
2020, COVID-19 could result in a loss of 0.7 learning-adjusted years of schooling. In China and the ASEAN-5,
for example, learning-adjusted years of schooling are expected to drop by 0.8 points, whereas in the small East Asian
economies, learning-adjusted years of schooling is expected to decline by 0.7 points (Figure 28). Because school closures
have been less common in the Pacific Island countries, the expected decline in learning-adjusted years of schooling is
somewhat less, estimated at 0.4 points.
Figure 28. School closures are expected to have lasting impacts on students’ learning in the region
14
Learning-adjusted years of schooling
12
10
0
China ASEAN-5 Small East Pacific Island High-income
Asian countries EAP
economies
Pre-COVID-19 Post-COVID-19 (mid-case scenario)
Source: Cloutier et al. (2020).

Note: Results expressed in Learning-Adjusted Years of Schooling (LAYS), Simulation results based on latest available LAYS data for EAP countries (unweighted averages).

Figure 29. Lost learning-adjusted years of schooling have real costs in terms of peoples’ earnings
Effects of lower learning-adjusted years of schools on individuals’ yearly earnings, by subregion
0
2017 PPP U.S. dollars –500
–1,000
–1,500
–2,000
–2,500
China ASEAN-5 Small East Pacific Island High-income
Asian countries EAP
economies

Note: Simulation results (unweighted average).
Fewer learning-adjusted years of schooling translate into substantial losses in individuals’ earnings over their
working lives. The average student in the region, from the cohort in school today, could face a reduction of US$865 (in
2017 PPP dollars) in yearly earnings in the mid-case scenario compared to those in which there was no pandemic. This
is equivalent to a reduction, on average, of 4 percent in expected earnings every year (Figure 29).
The adverse effects of the COVID-19 crisis on learning and human capital are expected to be greater among the
poor than the nonpoor. Poor households have less access to mobile technologies that could enable distance learning
during periods of school closures. A simulation analysis suggests that learning outcomes among the poor will be more
adversely affected by school closures than those of the nonpoor (Figure 30).
Figure 30. The effects of the COVID-19 shock on learning are likely to be larger among the poor than among the wealthy
The share of students achieving below minimum proficiency on PISA/PISA-D tests (measured by PISA scores below 2)
80
70
60
50
Percent
40
30
20
10
0
Poorest Richest Poorest Richest Poorest Richest
China ASEAN-5 High-income EAP
Pre-COVID Post-COVID (mid-case scenario)

Note: Share of students below minimum proficiency levels, as measured by a PISA score of less than 2. Simulation results based on the latest available PISA and PISA-D scores for 15 countries (unweighted average).

The economic shock to households may have other durable consequences on human capital accumulation.
Countries are reporting significant disruptions in immunization. One-third of primary health care networks reported
temporary shutdowns of immunization services in Indonesia, measles coverage in Lao PDR dropped from 83 to 40 percent
from end of 2019 to end of May of 2020, and the number of vaccinations in PNG dropped by 34 percent. These countries
also experienced a substantial decline in antenatal care coverage.
In addition, increasing food insecurity in some countries in the region could translate into a higher incidence of
malnutrition and stunting. More than a third of households in Indonesia indicate that they ate less than usual because
of lack of money or other resources, and a fourth said that they ran out of food, but these rates are higher among
households that experienced income losses (Figure 31). Similarly, high numbers are observed in PNG, a country that was
also badly hit by the crisis. While food production has not been seriously affected, and households are for the most part
able to purchase basic stables and proteins if needed, food insecurity seems to be driven by income losses associated
with the crisis. In Indonesia, a follow-up survey in June 2020 suggested that the proportion of households facing food
shortages had declined between early May and end-May/early June 2020, although still over one-fourth of households
reported facing at least some food shortages.
Figure 31. Food insecurity may be driven by income losses
50 50
Percent of households that ran out of food
40 40
Percent of households that
ate less than usual
30 30
20 20
10 10
0 0
Indonesia Mongolia Myanmar PNG Indonesia Mongolia Myanmar PNG
Wage/business income loss Wage/business income loss

No wage/business income loss No wage/business income loss
Sources: EAP high frequency household phone surveys, first round.

Notes: For panel A, in Indonesia and Mongolia the question referred to “eating less than you thought you should (because of lack of money or resources)” while in Myanmar and PNG it referred to “eating less than usual.”
Implications for productivity
The crisis is likely to hurt productivity growth. The crisis will generate negative effects by driving firms out of
business, losing valuable intangible assets, and diminishing productivity-enhancing investments within firms. But the
crisis is also accelerating the diffusion of digital technologies and that may alleviate these adverse effects.
First, evidence from past crises suggests that not just weak but strong firms are likely to exit (Hallward-
Driemeier and Rijkers 2013). More productive firms may be better able to weather the ongoing crisis through a
broader customer base, better access to finance, or adapting new business models, but that may not be adequate in the
face of persistently low demand. The exit of good firms will mean the loss of intangible assets—firm-worker and supply
chain relationships or management practices—that matter for productivity and are difficult to rebuild. Unemployment

could deprive the firm (if it survives) of hard-to-replace skills and reduce the worker’s future earnings if they are unable
to employ these firm-specific skills elsewhere.
Second, fewer firms are likely to enter, and start-ups typically find it hard to survive. That will scar longer-term
productivity growth because start-ups help diffuse new technologies and business models. In Myanmar, new business
registrations dropped 70 percent in April compared to March, and also in relatively resilient Vietnam there was a
5 percent drop in new business registrations in the first seven months of 2020, compared to the same period in 2019.
Third, surviving firms may face prolonged uncertainty and be saddled with debt—reducing their future
productivity-enhancing investments. During past crises, firms were less likely to undertake disruptive, radical
innovation and disproportionately cut back on intangible investments, such as research and development (R&D) product
innovation and worker training. The pandemic has led to enormous increases in firm uncertainty, dwarfing those recorded
during the financial crisis, and left firms with increased debts and stranded assets, such as unused office and factory
capacity. Firms have responded by significantly cutting expenditures on innovation, training, and general management
improvements, which is likely to considerably curb future productivity growth.
One bright spot is that COVID has accelerated investment in digital technologies which may translate into
faster but unequal productivity growth (Figure 32). Both firms and households are investing in computers, software,
and skills to cope with social distancing constraints. These changes are likely to durably modify the nature of work
and relationships between firms. The result may be increased productivity due to lower commuting, transaction, and
search costs, but diminished face-to-face interaction may also inhibit innovation and diffusion of ideas. The crisis may
also be catalyzing the use of digital financial services to keep financial systems functioning and keep people safe.
Across 74 countries, daily downloads of fintech apps have increased 24 percent since their COVID lockdown, with a
marked 65 percent increase in Asia. However, diffusion of new digital technologies requires governments to create a
regulatory and incentive framework which encourages the creation of the broadband infrastructure, competitive pricing
of services, and complementary intangible investments in training and reorganization by firms. Large and productive
firms in locations with high-quality digital infrastructure are better placed to make such investments—which can widen
disparities between the best firms and the rest.
Figure 32. Firms are increasing their use of digital platforms and investing in digital solutions
60
53 52
50 48
Share of firms (percent)
40
40
36
30
30 28
23
20 19
20 17
14
10
5
0
Indonesia Philippines Vietnam Cambodia Myanmar
Digital platforms Increased digital sales New digital investment
Source: Business Pulse Surveys.

Note: Data on increased digital sales and new digital investment are not available for Myanmar. The survey was conducted in May for Myanmar; June for Cambodia, Indonesia, and Vietnam; and July for the Philippines.

Trade: Resilience, regionalization, relocation, and servicification
Trade has been a powerful engine of EAP growth, by encouraging the movement of resources to more productive sectors
and firms and encouraging the international diffusion of technologies and knowledge. Since the 1990s, the growth of
global value chains has brought further benefits to the world and the region through hyper-specialization in parts and
tasks, and the sharing of knowledge between firms in long-term relationships. Therefore, the impact of COVID-19 on
trade and GVCs is critical to the region’s growth prospects.
Global trade shrank because of the stringent policy response but is beginning to recover. The trade decline was
caused by the disruption of production in source countries and the contraction of consumption in destination countries.
Recent research finds that a 1 percent decline in worker mobility led to a 0.5 percent decline in export growth, and
a 1 percent decline in retail mobility led to a 0.25 percent decline in import growth. These negative trade effects
intensified over the early months of 2020 with the increase in the number of cases and the stringency of lockdown
policies (Figure 33). Since China first, and then many other countries in the region suppressed outbreaks faster than
other parts of the world, domestic shutdowns were phased out, and production and consumption also recovered faster
than in other parts of the world. That meant exports of EAP countries also showed greater resilience.
Figure 33. Export growth across countries was hurt by their restrictions on work mobility
100
80
Export growth by county (Y/Y percent change)
60
Fiji
40 Myanmar
Papua New Guinea
20 Lao PDR
Malaysia
Lao PDR
0 Singapore Australia
–20 New Zealand Fiji Korea, Rep.

Japan
Fiji
–40
–60
–80
–75 –70 –65 –60 –55 –50 –45 –40 –35 –30 –25 –20 –15 –10 –5 0 5 10 15
Average monthly work mobility change (compared to Jan 2020)
EAP Countries
False February
March
True April
Source: Espitia et al. (2020).

Participation in global value chains may have enhanced this resilience in unexpected ways. The disruption of
production in source countries adversely affected exports of products that rely on imported inputs from those countries.
But the negative impact of a disruption in production in exporting countries themselves was mitigated by greater backward
participation in global value chains, i.e., a higher share of imported value added in exports. Thus, the diversification
benefits of GVC participation reduced vulnerability to domestic shocks, especially because the intensity of the COVID-19
shock varied over time across countries.
Regionalization: The COVID-19 shock is deepening integration within EAP. Faster recovery in the region meant
that intra-regional trade suffered less than trade in and with other parts of the world. The ambitious targets specified
in the China-U.S. Trade Agreement had the potential to divert China’s imports away from EAP and toward the United
States, but the opposite has occurred. In sum, the recent evidence suggests that COVID-19 has further boosted the trend
toward the regionalization of EAP trade evident in the last two decades (Figure 34). Foreign direct investment (FDI) may
follow the same pattern. The region now receives more FDI from countries in the region, especially high income, than
from countries outside of the region.
Figure 34. China’s import growth from the United States has declined but from EAP has picked up this year relative to last year
10 7.8
5 2.6
0
–5 –0.4
–3.9 –5.2 –3.2
Percent
–10
–8.6
–15
–20
–25
–30
–28.4
–35
Total ASEAN-5 United States EU
Jan–July 2019
Jan–July 2020
Source: China’s customs administration.

Note: EU represents 27 European Union countries.
Relocation: COVID-19 may not lead to retreat from GVCs but could lead to a shift away from China of some
manufacturing activity. Real wages are increasing in China due to demographic change and growth, and that was
already leading to a shift of some manufacturing activity to other countries. An analysis of past shocks suggests that
importers do not bring production home but reduce excessive dependence on any single foreign source. Thus the 2011
earthquake in Japan did not lead to reshoring, nearshoring, or diversification, but imports shifted away from Japan,
who had a high share in imports, and toward developing countries that had a revealed comparative advantage in the
input (Figure 35). These results cannot be mechanically applied to COVID-19, but the observed pattern of switching may
provide clues about the future. Import dependence on China was high before the coming of COVID-19, as was its export
similarity with other developing countries.

Figure 35. Post-tsunami changes in import patterns suggest relocation where there was high dependence, not reshoring
Source: Freund et al. (2020).

Note: The figures plot Japan’s mean and median market share of auto components in country products in which Japan had an average market share lower than 15 percent (left panel “Low Share”) and greater than
15 percent (right panel “High Share”) calculated over the 2004–2010 period.
The pattern of where production went after the Japan shock may indicate where production may shift from
China. For example, in electronic products, shifts away from Japan in products where it had a high share, were toward
China (a continued trend), Vietnam (an acceleration), and Malaysia (a reversal of a prior decline), but not significantly
toward Indonesia or Thailand (Figure 36).
COVID-19 is likely to shift the pattern of services globalization from trade in face-to-face services, like tourism
and international transport, to trade in digitally delivered services, like telecommunications, business, and
software (Figure 37). The information and communication technology revolution has already led to a rapid growth in
business services exports from countries like the Philippines. Since COVID-19 is making face-to-face transactions difficult,
firms and people are investing heavily in digital equipment and literacy. The result will be a levelling of domestic and
international trade costs in a range of services, from education to health. Since digital investments are “sunk costs”—
i.e., computers bought, and skills learnt are here to stay—the impact will be more durable than the pandemic. The result
will be new opportunities for developing countries, like Malaysia and Thailand, which have successfully participated in
manufacturing value chains, to now advance into services exports. In addition, since knowledge-intensive services like
education are becoming easier to trade than ever before, servicification reduces the costs of acquiring skills that can
boost productivity.

Figure 36. Post-tsunami changes suggest GVC relocation is sensitive to EAP country conditions
Source: Freund et al. (2020).

Note: The figures plot each country’s mean and median market share in country products, in which Japan had an average market share greater than 15 percent calculated over the 2004–2010 period.

Figure 37. The structure of services trade is changing: shrinking face-to-face and growing digitally delivered services
16
Telecom and ICT
14
Data intensity, as share of total inputs
12 y = 0.0746x + 4.0301
R² = 0.2952
10
8
IP charges
Financial
6
Insurance
4 Other business
Transport Recreational
2
Travel
Construction Maintenance and repair
0
–80 –60 –40 –20 0 20 40 60 80 100
YoY percentage change, yearly average of monthly data
CHN USA DEU JPN

Linear (CHN) Linear (USA) Linear (DEU) Linear (JPN)
Source: Mattoo and Taglioni (2020).
Implications for potential growth
Potential growth—the growth rate of the level of output an economy would sustain at full capacity utilization
and full employment—was decelerating in the region before the COVID-19 crisis. Worsening demographic trends,
reflecting a declining trend in the share of the working-age population in China, Thailand, and Vietnam, are dampening
labor supply in many countries (World Bank 2018). A slowing pace of capital accumulation reflects rebalancing and
policy efforts to rein in credit growth in China, and lower investment rates in other countries due to heightened policy
uncertainty. Slowing human capital accumulation in lower-income economies (Cambodia, Lao PDR), and slowing factor
reallocation (China, Malaysia, Thailand, Vietnam) have contributed to lower total factor productivity growth.
COVID-19 will dampen potential growth. Assuming that each underlying component of potential growth (investment,
human capital, and labor force participation rate) follows the historical trend, EAP potential growth is expected to
decline in the next decade by almost 2 percentage points, from 7.6 percent in the last decade (2010–19) to 5.7 percent
on average (over 2020–2030) regardless of the effects of COVID-19 (Figure 38). Under a pessimistic scenario, which
reflects the negative impact of COVID-19 on investment, productivity, and labor participation, the potential growth is
expected to decline more sharply to 4.4 percent on average over the next decade (2020–30).
Policy reform can mitigate the adverse effect of COVID on potential growth. Efforts to promote higher investment,
better education, and health, and to close the gap between male and female labor force participation would help.
Investment growth would not only boost potential growth by adding to the capital stock, but also via improved total
factor productivity (TFP). Improvements in education (in terms of secondary and tertiary enrollment and competition
rates) and health outcomes (in terms of life expectancy) can improve potential growth via their effect on labor supply

Figure 38. COVID-19 will dampen potential growth
a. China b. EAP excluding China
10 5
8 4
6 3
Percent
Percent
4 2
2 1
0 0
2010–19 2020–30 2020–30
(Baseline) (Pessimistic
–2 2010–19 2020–30 2020–30 scenario)
(Baseline) (Pessimistic
scenario)
Capital Labor
Capital Labor
TFP Human capital
TFP Human capital
Potential growth Potential growth
Sources: Penn World Tables; World Bank staff estimations.

Note: GDP-weighted averages of production function-based potential growth. TFP is total factor productivity growth.
and TFP growth. Raising the labor supply can also be achieved through reforms aimed at increasing female labor force
participation rates. Some of these policy issues are discussed in the next section.
An Integrated View of Policy

Crises by their very nature create political pressure to take a “here-and-now” view of policy. While such focus
is desirable, policy choices to contain the disease and provide relief today would ideally be informed by how they will
affect recovery and growth tomorrow. For example, the experience so far shows that saving lives cannot be treated as a
separate goal from saving livelihoods. How lives are saved (e.g., through stringent shutdowns or through investing in
the capacity to test, trace, and isolate) will determine how much need there is to provide relief from economic distress.
And how relief is provided can affect prospects for recovery and growth.
An integrated and inter-temporal view of goals and policies could at least increase awareness of opportunity
costs and may even lead to socially desirable choices. In some cases, measures to provide relief, support recovery,
and sustain longer-term growth are mutually supportive. For example, ensuring the survival of firms that are likely
to thrive post-COVID-19, if it were possible to identify these firms, would provide relief to workers, facilitate a quick
recovery, and boost growth. In other cases, governments must make policy choices in the face of difficult trade-offs,
which are most evident when considering government spending but could arise with policy choices. For example, in
deciding on whether schools should be open, countries would consider both the benefits in terms of containment
and the costs in terms of lost learning. In protecting jobs and firms, they would consider the benefits of preserving
employer-employee matches and expertise versus the costs of inhibiting reallocation of workers and production across

firms and sectors. Taking these trade-offs into account may lead to better, more nuanced policies: countries may decide
that nurseries and elementary schools should stay open because the benefits of learning outweigh the risks of infection;
and countries may provide support to firms but credibly commit to phasing it out based on objective macroeconomic
indicators of recovery.
A dynamic view could also help governments make choices today that soften trade-offs tomorrow. That is
important because some policies take time to implement or to have an effect. Thus, building the capacity to test, trace,
and isolate today could help contain future surges of the disease tomorrow, with more targeted and less disruptive
shutdowns. Similarly, implementing tax reforms today that help mobilize resources tomorrow could allow greater
spending on social protection without sacrificing public investment in infrastructure.
Containment policy
Countries still face a trade-off between containment and recovery, which can be alleviated by developing
the capacity for smart containment. The disease still rages in some countries like Indonesia and the Philippines,
and even those that have suppressed its spread like China and Vietnam still face a threat of resurgence in infections.
Indonesia and the Philippines must decide now on how far to relax containment measures to revive economic activity,
and China and Vietnam will have to decide how far to reimpose such measures to preserve activity. Ideally, the period of
stringent containment or dormancy would be used to create the capacity to limit the spread of disease without recourse
to excessively disruptive measures, as seems to have been accomplished in countries like China and Vietnam. Where
such capacity has not yet been created, continued strengthening of the capacity to test, trace, and quarantine; target
lockdowns; and modify behavior will help soften the trade-off between lives and livelihoods (Figure 39) (Acemoglu et al.
2020; Loayza 2020). However, countries with poor health systems, such as the PICs, might choose to minimize health
costs, e.g., by shutting off international travel, as even a single case could easily lead to overloaded hospitals and a
high death rate. In any case, regional and wider international cooperation can help ease the trade-off for all countries
between opening borders and preventing disease spillovers. Looking ahead, countries must invest early in building
capacity to distribute a COVID-19 vaccine efficiently and fairly, in order to ensure social stability and facilitate economic
recovery (Box 4).
Figure 39. Strengthening capacity for smart containment can soften the trade-off between saving lives and preserving livelihoods
Maximal fully
effective control
Maximal feasible control
Optimal uniform
lockdown No control
Output loss
Optimal
targeted
Optimal targeted lockdown
lockdown
+ group distancing
+ test and trace
0 Deaths
Source: Acemoglu et al. 2020.

Box 4. Accelerating and anticipating the development of the COVID-19 vaccine
What is the status of vaccine development and production capacity?

There are over 250 vaccine candidates being pursued, and 37 are in human trials. At least US$6.7 billion has
been invested in vaccine research and development. Results from early phases of the clinical trials are promising,
and at least nine candidates have progressed to Phase III trials of safety and efficacy. Results from some front-
running candidate vaccines are expected in October 2020, after which regulators will review the results and
decide whether to approve them. In EAP, Indonesia is hosting trials of Sinovac’s vaccine, and the Philippines will
begin trials in October 2020 of a vaccine developed in Russia.
Global production capacity is optimistically estimated at one billion doses by the end of 2020, rising to an
estimated eight billion by the end of 2021. Deals between countries, vaccine developers, and manufacturers have
already been arranged to produce vaccines for specific countries. In EAP, AstraZeneca has negotiated production
agreements with Chinese and Japanese companies to produce hundreds of millions of doses of its vaccine for use
in those two countries.
How will the vaccine be financed?

Some countries, many of them high-income, have signed agreements with manufacturers of front-runner
candidates. To promote equitable access, the COVAX Facility is an agreement with countries to pool global
demand and resources for eventual COVID-19 vaccines. The COVAX Advanced Market Commitment (AMC) is
a financial instrument that mobilizes official development assistance to subsidize the purchase of COVID-19
vaccines for low- and lower-middle-income countries and other IDA-eligible economies. The COVAX AMC will
procure vaccines for eligible countries through the COVAX Facility, both of which will be administered by the
secretariat of Gavi. All countries are eligible to join the COVAX Facility, while the COVAX AMC is only open to 92
eligible countries (based on GNI or size or fragility of state); 18 EAP countries are eligible. Of the 80 countries
that have expressed interest in self-financing participation in the COVAX Facility, Singapore, Republic of Korea,
and Palau are those from EAP that have agreed to be publicly named.
Questions remain about the costs of the vaccines and their delivery, how countries utilizing COVAX AMC may
cofinance the vaccine, how development partners will choose to support COVAX AMC, and how federal and local
financing and systems may interact in implementation.
How should vaccine delivery be managed?

Despite decades of implementation, there are many weaknesses even in current routine immunization programs;
in EAP, Papua New Guinea’s recent polio outbreak and Samoa’s measles surge are clear evidence. While the
COVID-19 vaccine will need to be administered primarily among adults, most immunization systems worldwide
are designed for children, which suggests that new strategies may need to be developed.
Vaccine delivery mechanisms for COVID-19 will also depend significantly on the characteristics of the approved
vaccine. Different leading candidates have different cold chain maintenance requirements and different numbers
(continued)

(Box 4. continued)
of required doses. These factors will influence the immunization infrastructure that needs to be developed and
the requirements for vaccine recipient monitoring.
Countries must ensure effective vaccine communication campaigns; end-to-end supply chain and logistics
management systems for effective vaccine storage, handling, and stock management; cold chain control; service
and coverage tracking systems; and well trained, protected, motivated, and supervised health care workers to
administer the vaccine. Raising the visibility of early adopters of the vaccine and other mechanisms of social
influence may help mitigate legitimate vaccine apprehension among the general public.
EAP countries with relatively low routine vaccination coverage, including Samoa; Micronesia, Fed. Sts.; the
Marshall Islands; and particularly Papua New Guinea (all with DTP3 coverage <80 percent) may benefit from
concerted efforts now to identify existing bottlenecks. Addressing known weaknesses in the immediate term can
facilitate rapid dissemination of the vaccine once it is available.
How should vaccine administration be prioritized?

Since vaccine administration may need to be allocated strategically until a sufficient supply is available, the
World Health Organizatin (WHO) recommends that health care workers (including health facility support staff)
be prioritized first, followed by the elderly and those with pre-existing conditions, and then followed by essential
workers. Countries may also need to consider trade-offs between minimizing deaths or years of life lost, preventing
mortality as opposed to infections; and whether to prioritize certain subpopulations, such as young people who
are more likely to spread the disease asymptomatically, vulnerable and/or low income individuals who cannot
socially isolate or take other precautions, or members of the population whose return to work would hasten
economic recovery.
Fiscal policy
Revenue constraints create sharp trade-offs between government spending on relief, recovery, and growth.
Governments today must consider three needs. Fiscal relief is required and has already been provided by the EAP
governments in the current recession to prevent business closures, widespread unemployment, and a collapse in
household incomes. Further fiscal stimulus could facilitate recovery by helping to overcome the coordination problems
which can trap economies in underemployment equilibria—when social distancing no longer dampens the propensity
to consume, and hence fiscal multipliers. Fiscal resources for investment in the hard and soft infrastructure, from
broadband to health and educational capacity, could support stable, inclusive growth. As noted above, some types of
spending—such as support that helps high potential firms to survive—can fulfil all three needs. In other cases, there is
an opportunity cost: significant expenditure on relief today or a consumption-supporting stimulus tomorrow will leave
an indebted government less equipped to invest in infrastructure and hence growth (Box 5).
The intertemporal budget constraints are difficult because EAP economies have narrow revenue bases
and financing conditions are not easy. Revenue mobilization is exceptionally low in the EAP region (Figure 40).
Furthermore, the greater reliance on indirect taxes has amplified the revenue loss in a crisis where consumption has

Box 5. Fiscal positions and economic growth after pandemics
Fiscal positions in affected countries deteriorate during pandemics. As epidemics usually cause an economic
downturn, government expenditure increases and revenue decreases. The deterioration in the affected country’s
fiscal position and the accumulation of debt may hinder its economic recovery. To help draw inferences on the
possible effects of COVID-19 on fiscal positions and output, we examine how past epidemics (SARS, MERS, Ebola,
H1N1, and Zika) have affected fiscal positions and GDP growth. The reach of the COVID-19 pandemic is of
course much larger than that of these other pandemics, but past experience can helps us identify the channels
and significance of effects. The local projection method (LPM) is used to provide a reduced-form estimate of the
response of output to adverse events over various horizons and to identify key transmission channels (Jorda 2005;
Jorda et al. 2013).
First, fiscal positions in affected countries deteriorate because of pandemics (Figure B5.1). This effect is persistent.
The fiscal balance-to-GDP ratio decreases by 2.5 percentage points in the aftermath of epidemics and remains at
a lower level for the next three years. Gross government debt increases and remains above its pre-epidemic level
for the five years following an episode.
Figure B5.1. Fiscal positions deteriorate in the aftermath of epidemics
a. Response of fiscal balance after epidemics (cumulative) b. Response of gross government debt after epidemics
(cumulative)
2 20
1
15
Percentage points
0
Percentage points
–1 10
–2
5
–3
–4 0
t=0 t=1 t=2 t=3 t=4 t=5 t=0 t=1 t=2 t=3 t=4 t=5
Source: World Bank staff estimations.

Note: Lines show the estimated impacts of the past epidemics on fiscal deficit and gross debt positions relative to non-affected economies. The five epidemics considered are SARS (2002–03), H1N1 (2009),
MERS (2012), Ebola (2014–15), and Zika (2015–16). The regressions control for country fixed effects, trade to GDP ratio, log of population size, log of real GDP per capita, and a decade dummy. In addition,
regressions control for business cycle dynamics and financial crisis by including U.S. recession and banking crisis dummies. The dashed line represents 90 percent confidence intervals.
The affected country’s real GDP remains below its pre-epidemic level relative to non-affected countries for
more than five years. This suggests a long-run negative effect of epidemics on the affected country’s economy
(Figure B5.2). Recent epidemics since 2000 have indeed had a significant and durable negative effect on GDP
growth in the countries affected (Ma et al. 2020). Following Romer and Romer (2019), the regression is modified
to disentangle the impact of the pre-epidemic fiscal position on economic recovery after an epidemic. The results
suggest that countries with higher gross government debt suffer more losses in output during epidemics, likely
(continued)

(Box 5. continued)
reflecting a lower ability of governments to support the economy. While output is estimated to be on average
7 percent lower after five years relative to a non-affected economy, higher debt can explain between 1 and
2 percentage points of the total loss in output.
Figure B5.2. Worsening fiscal positions contribute to output losses in the aftermath of epidemics
–2
Percent
–4
–6
–8
–10
t=0 t=1 t=2 t=3 t=4 t=5
Epidemic effect on output

Additional negative effect on high government
debt during epidemics
Source: World Bank staff estimations.

Note: Red bars show the estimated impacts of the past epidemics on output levels relative to non-affected economies over various horizons. Orange bars measure the additional response of output level
that affected a 0.1 standard deviation increase in pre-epidemic government debt to GDP ratio. The five epidemics considered are SARS (2002–03), H1N1 (2009), MERS (2012), Ebola (2014–15), and Zika
(2015–16). The regressions control for country fixed effect, trade to GDP ratio, log of population size, log of real GDP per capita, lagged government debt to GDP ratio, and a decade dummy. In addition,
regressions include control for business cycle dynamics and financial crises by including U.S. recession and banking crises dummies at the current period.
Figure 40. Revenue mobilization is comparatively low in developing EAP region
a. General government revenue b. Indirect taxes as a share of total government revenue, 2018
40 AFC GFC COVID-19 70
60
Percent of government revenue
35
50
Percent of GDP
30
40
25
30
20 20
10
15
1994
1996
1998
2000
2002
2004
2006
2008
2010
2012
2014
2016
2018
2020f
0
Lao PDR
Mongolia
Indonesia
Myanmar
Cambodia
Vietnam
Philippines
China
Thailand
Malaysia
PNG
AEs
China
Developing EAP excluding China
EMDEs excluding EAP Commodity Commodity
Advanced economies exporters importers
Sources: International Monetary Fund Fiscal Monitor and Government Finance Statistics; International Center for Tax and Development and United Nations University World Institute for Development Economics Research
(ICTD/UNU-WIDER) Government Revenue Dataset; World Bank staff calculations.
Note: A. Averages are computed with current U.S. dollar GDP weight. B. Total revenue excludes social contributions and grants revenue. 2018 or latest available year.

contracted sharply. Governments therefore confront hard choices on the financing side. Even though the levels of
indebtedness are not high in most countries, they are growing, and excessive borrowing could lead to an unsustainable
fiscal situation, resulting in debt crises. Inducing central banks to buy sovereign bonds beyond a point could undermine
central bank independence and inflation control, which have been crucial for macroeconomic stability in the region. And
overreliance on the banking system, as a conduit for support by relaxing prudential measures and allowing permissive
accounting, could threaten financial stability in countries where bank balance sheets are already weakening (Figure 41).
Figure 41. Most countries financed their fiscal deficit through increased domestic borrowing
Financing of fiscal deficit
12
10
8
Percent of GDP
0
China
Mongolia
Cambodia
Philippines
Lao PDR
Indonesia
Myanmar
Vietnam
Malaysia
Thailand
Domestic borrowing External borrowing
Asset purchase by the central bank Use of sovereign assets
Others
Sources: International Monetary Fund; Official national country statistics; World Bank; World Bank staff calculations.
Note: Information is not available for Lao PDR. The Philippines’ government borrowing is expected to exceed its estimated deficit in 2020.
The EAP economies have traditionally had small governments and raised limited revenues. Most EAP countries,
except China, Mongolia, and Vietnam, have defied the conventional logic that open economies need to have larger
governments whose spending plays a risk-reducing role in economies exposed to significant volatility (Rodrik 1998).
That commitment to limited government has been consistent with the objective of creating a business-friendly low-
tax environment where dynamic firms helped deliver not just growth, but also ensure it was inclusive by shifting the
distribution of incomes to the right. Those actions are also consistent with the goal of stability, because firm performance
was seen as critical to recovery from recessions which would help the region “grow out of debt.” Even in this crisis, as
discussed above, government measures have complemented support for households with support for firms.
But COVID-19 may reinforce the argument for revisiting the low-tax model. In the early phases of their
development, the low-tax environment yielded high investment and growth rates, which compensated for limited state
capacity to stabilize or redistribute. As the EAP economies incomes converge toward those of richer countries and returns
to investment decline, the incremental growth benefits of low taxation may also decline relative to the costs of volatility
and worsening distribution. Particularly, given the enormity of the COVID-19 shock and its capacity to inflict durable
and debilitating scars, the scale of government action needed to meet both growth and distributional goals needs to be
supported by a stronger revenue base.
Reform can soften the fiscal trade-offs and lead to better social outcomes. The increased need for government
spending and the increasing debt could hurt the goals of longer-term stable and inclusive growth. For example, how

governments distribute the burden of the economic losses incurred during the crisis will matter. Reducing the burden
of public debt through inflationary measures or indirect taxation could be regressive. Dealing with debt through
financial repression could inhibit growth. Governments may need to consider deeper reforms where the revenue base
is widened and includes a greater role for direct income and corporate taxes to supplement the reliance on indirect
taxes. Currently, the region’s systems of taxes and transfers do not worsen inequality, but they have had relatively little
effect on mitigating it. This contrasts to the effects of taxes and transfers in some advanced economies, which tend to be
strongly equality enhancing. In parallel, there is of course need for expenditure reform, including of subsidies that are
not socially desirable, such as those that are regressive and keep the price of carbon-based energy artificially low (Box 6).
The speed of such reform may be influenced by the current global environment, where the costs of borrowing are likely
to be durably low, both because of loose monetary policy and diminished global growth.
Box 6. Carbon pricing: Sustainable finance for sustainable development?
The pandemic has triggered an unprecedented increase in public spending. Governments are struggling to fund
extensive recovery packages without cutting other expenditures or reducing public investment. Energy pricing
reforms could alleviate this fiscal pressure while addressing the threat of global warming.
Carbon tax revenues could be substantial for EAP economies, even from a modest tax that would keep fuel prices
below the 2019 pre-pandemic levels. Despite recovering recently, global oil prices remain about one-third below
their pre-COVID levels. Coal prices are now above the levels immediately prior to the crisis, but below the average
prices over the last three years. Against this backdrop, introducing, for example, a US$50 carbon tax in the
Philippines would raise longer-term gasoline prices by 14 percent, roughly equivalent to the differential between
current and pre-COVID prices, while generating more that 1 percent of GDP in additional revenue.
Fiscal space can also be created by curbing fuel subsidies. These still have a significant footprint in government
budgets, accounting for as much as 0.25 percent GDP in China, 0.50 percent in Vietnam, 1.31 percent in
Malaysia, and 2.58 percent in Indonesia (Coady et al. 2019). In recent years, progress toward limiting fuel
subsidies has halted in Vietnam and has actually been reversed in Indonesia (Figure B6.1). The dramatic fall in
energy prices due to the global economic slowdown reduces the rationale for such subsidies and presents the
opportunity for substantial fiscal savings.
Figure B6.1. Fossil fuel subsidies account for substantial share of GDP
5
Pre-tax subsidies, % GDP
0
2010 2012 2014 2016
China Indonesia Malaysia
Thailand Vietnam
Source: International Monetary Fund data from https://www.imf.org/en/Topics/climate-change/energy-subsidies
(continued)

(Box 6. continued)
Carbon prices can contribute to an inclusive and sustainable recovery. Pigato (2018) shows that carbon taxes
tend to be progressive in developing countries and less distortionary than taxes on labor or income. Shifting
taxation from labor to carbon would reduce the opportunity cost of formality and improve the efficiency of the
tax system, thus stimulating the economy. Sustaining carbon prices would disincentivize reliance on coal and oil,
and promote a recovery that favors the use of cleaner sources of energy.
Policy makers can build on the experience of several countries, including China, Korea, Rep., Japan, and
Singapore, where carbon pricing initiatives are already underway. Recycling some carbon-tax revenue could also
help overcome political opposition to the introduction of such a scheme (Klenert et al. 2018).
As countries work to enhance domestic resource mobilization, international support can help. The expenditure
needs and contracting revenues due to the pandemic are creating fiscal difficulties for some EAP countries. Countries
with large fiscal deficits or large debt burdens are particularly vulnerable. New bouts of debt distress and/or financial
instability are possible and will become more likely in the absence of stepped-up external support (Table 2). The G20
Debt Service Suspension Initiative (DSSI) for poor countries announced in April could defer up to US$12 billion in
debt service due in 2020, and can help several EAP economies alleviate debt, including Lao PDR, Cambodia, and
many Pacific Island economies (Figure 42). There is a case for extending the DSSI into 2021, including all Public and
Publicly Guaranteed (PPG) bilateral debt should be covered. Private sector creditors need to participate; a voluntary
approach has not produced results. Debt sustainability analysis (DSAs) will be undertaken jointly by WB/IMF to look at
longer-term sustainability concerns. Greater debt transparency is critical to help countries make more informed borrowing
and investment decisions and to attract foreign direct investment.
Table 2. Debt distress remains high for several Pacific Island economies
Risk of external Risk of overall Date of DSA

debt distress debt distress Publication
Cambodia Low Low 19-Dec
Kiribati High High 19-Jan
Lao PDR High High 19-Aug
Marshall Islands High — 18-Sep
Micronesia, Fed. Sts. High High 19-Sep
Myanmar Low Low 20-Mar
PNG High High 20-Jun
Samoa High High 20-Apr
Solomon Islands Moderate Moderate 20-Jun
Timor-Leste Low Low 19-May
Tonga High — 18-Jan
Tuvalu High — 18-Jul
Vanuatu Moderate Moderate 19-Jun
Source: World Bank.
Note: DSA refers to Debt Sustainability Analysis. Risk assessment is based on Low Income Debt Sustainability Framework (LIC DSF) and reflects published DSA ratings as of end-June 2020.

Figure 42. The Debt Service Suspension Initiative can have significant benefits for some EAP countries
Potential DSSI savings Potential DSSI savings (2019)
400 371.6 2.0
300 270.3 1.5 1.4 1.4

USD, million
1.2
Percent of GDP
206.2
200 1.0 0.8 0.7
0.5 0.5
100 67.8 0.5
22.7 13.3 0.2 0.1 0.1
9.9 6.5 6 1.5
0 0
Myanmar
Lao PDR
Cambodia
Mongolia
PNG
Fiji
Samoa
Vanuatu
Tonga
Lao PDR
Tonga
Samoa
Cambodia
Vanuatu
Myanmar
Mongolia
Fiji
PNG
Solomon Islands
Solomon Islands
Source: World Bank COVID-19 Debt Service Suspension Initiative: https://www.worldbank.org/en/topic/debt/brief/covid-19-debt-service-suspension-initiativ
Note: DSSI refers to Debt Service Suspension Initiative. Estimated debt service payments owed. World Bank International Debt Statistics (IDS) data based on monthly projections for May–December 2020, based on end-
2018 public and publicly guaranteed debt outstanding and disbursed.
Support for firms
Trade-offs also arise in implementing support for firms during the COVID-19 crisis. Crises are bad selectors with
both good and bad firms driven out. Therefore, policy support is crucial, but difficult to design. Government support
faces one key tradeoff: immediate indiscriminate versus slower, targeted implementation. Firms highly reliant on cash
flows may not survive a shock of the magnitude and depth generated by the pandemic for long. Prompt government
action is needed to avoid igniting downward spirals. But prompt action is likely to be indiscriminate, at least initially,
since designing new, targeted policies takes time. The downside is that broad support may keep zombie and unproductive
firms afloat, along with productive firms with intangible assets that are important for the recovery. When more capital is
sunk in zombie firms, the resources available for productive firms to scale up are more limited.
Nevertheless, policy should strive for a more efficient allocation of financial support even in the short term.
Support is rarely indiscriminate. Even when it is in principle available for all firms, only some firms may be adequately
informed, identified, or politically connected to take advantage of it. Therefore, the challenge is to define objective
and transparent criteria, to both avoid supporting unproductive firms and to mitigate concerns about picking winners.
Ideally, such criteria would be based not just on past performance or current pain but on a firm possessing intangible
assets that will be valuable in a post-COVID-19 world. Micro and informal firms which operate outside of financial and
tax systems will have few such assets and are in any case hard to reach. Therefore, they are better supported through
social protection interventions. In some cases, past performance, as revealed by previous years’ profits, tax revenues
or trade flows, or present performance, as reflected in stock prices, may provide clues on firm potential. For example,
controlling for market risk, there is as much as a 25 percent gap in cumulative return between more and less resilient
firms in U.S. asset markets. Support may be directly tailored to encourage investment in intangibles and promote long-
term productivity growth, for example by incentivizing R&D or skills training. In any case, governments must credibly
commit to terminating assistance when it is no longer needed to avoid the risk of capture by politically connected firms.
For example, in Brazil, credit market interventions in response to the financial crisis continued to expand even after
the economy recovered. One option is to legally link the continuation of support to certain objective macroeconomic
indicators of recovery.

Broad policy reforms, while they can take time, support the entry and expansion of innovative businesses—the
productive firms of tomorrow. Although the support of existing productive firms today is important, the recovery
also depends upon new innovative firms, and start-up firms are particularly sensitive to the business environment.
Strengthening venture capital and early-stage finance market development, through tax policy, public funding or
regulatory reform can all help innovative start-ups. Reducing red tape and streamlining regulatory systems can facilitate
firm entry and reduce the bureaucratic advantages of incumbents. Improving insolvency resolution can promote the exit
of zombie firms, freeing resources for productive firms to scale up. The introduction of specialized bankruptcy courts in
selected Chinese cities has led to faster resolutions of bankruptcy cases, decreased the share of labor in zombie-intensive
industries, and increased average product of capital. Accelerating infrastructure investments, such as improving access
to digital infrastructure, can reduce the barriers to broader adoption of digital business models, such as e-commerce,
remote working, and cloud computing. Liberalizing services and reducing barriers to competition are largely untapped
avenues to promote more efficient resource allocation. Promoting competition in upstream sectors, complemented
by prudential and other regulatory reform, can benefit the whole economy. Business environment reforms are often
triggered by crises, being hard to implement in normal times, so this represents an opportunity to get the policies right.
Social protection
EAP countries have spent relatively little on social protection, but most have stepped up support in response
to the pandemic (Figure 43). Countries’ responses have been substantial and broadbased, utilizing the following
range of social protection instruments: social insurance to protect formal sector workers, social assistance programs—
particularly cash and in-kind transfers—to support poor and vulnerable households, and labor market measures to
promote employment continuity and strengthen workers’ skills. Moreover, governments in the region recognize that
social protection has a triple role to play: in mitigating the immediate impacts of the crisis; in supporting workers to
reintegrate productively in the economy as countries recover; and in ensuring that short-term impacts of the crisis do
not result in long-term harm to human capital, productivity, and economic opportunity.
An important lesson from the crisis to date is that countries with well-functioning social protection programs
and good implementation infrastructure, pre-COVID, have been able to scale up more quickly during the
pandemic (Figure 44). For example, Malaysia’s ability to mount a quick and wide-ranging social protection response
reflected the fact that it could leverage existing programs and good implementation infrastructure, including a universal
national ID system, broad mobile phone coverage, and high financial inclusion. Similarly, Thailand’s ability to identify,
screen, and provide support to millions of previously uncovered workers and farmers is also built on a robust national ID
system, broad digital-mobile infrastructure, and sound information systems. In contrast, many Pacific Island countries
have the least developed social protection systems in the world. Continuing to build staff and administrative capacity
to implement expanded programs is critical for effective delivery during the crisis but also represents an investment
in countries’ abilities to deal with future needs. In this sense, the pandemic represents an important opportunity for
countries to undertake measures that will result in long-term strengthening of their social protection systems, including
the ability to adapt to future shocks.
As countries begin to recover, social protection programs can play an important role in supporting workers’
integration back into the economy. This economic recovery role will require a different mix of policies and instruments
than those used during the crisis phase, however. Labor market initiatives will need to take a more prominent role,
providing workers with: training and skills upgrading to help them meet changing demands in the labor market;

Figure 43. While most East Asia and Pacific countries have spent relatively little on social protection pre-COVID, the response to
the crisis has been substantial in most countries
a. Average public spending on social assistance, by region b. Public spending on social assistance in selected East Asian
and worldwide countries, pre-COVID-19 and including countries’ COVID-19
responses
2.5 9
8
7
2.0
Percent of GDP
6
5
Percent of GDP
1.5 4
3
2
1.0
1
0
Timor-Leste
Mongolia
Indonesia
Malaysia
Philippines
Vietnam
China
Myanmar
0.5
0
ECA AFR LAC MNA SAR EAP World
Spending, pre-COVID-19
Average annual spending, pre-COVID-19 Spending, including COVID-19 response
Source: A. World Bank staff calculations based on ASPIRE database data; B. World Bank staff estimates.
Note: Figures capture central government spending on social assistance. In contexts where social assistance spending by local governments is important, as in China, figures may underestimate pre-COVID spending levels
as well as the magnitude of the response.
Figure 44. The scale of a country’s COVID-19 social protection response is related to a country’s exisitng “delivery capacity”
(actual or planned COVID-19 cash transfer coverage, percent of population)
120%
Cash transfers coverage (C19 response)
100%
R² = 0.8005
Malaysia
80%
Singapore
Thailand
60%
40% Myanmar
R² = 0.0756
Indonesia
Vietnam
20%
Cambodia
0%
0 50 100 150 200 250 300 350
JAM index (ID, mobile phones, bank accounts)
EAP Other regions
Source: Mason et al. (2020).

Note: The JAM Index, which combines a measure of the prevalence of citizen identification, mobile phone coverage, and bank accounts. While JAM Indexes also exist for China, Lao PDR, and Mongolia, no national level
data are available on cash transfers in China. In Lao PDR, the government did not launch a specific COVID-19 response. In Mongolia, coverage by the Child Money Program was near-universal prior to the pandemic. So,
rather than expanding coverage, the Government of Mongolia raised the amount of the associated cash transfer.

employment support services/job placement to help match employers’ needs with workers’ skills; and special employment
support measures for selected groups, such as youth and older workers, including through targeted wage subsidies that
incentivize new hiring and skills development for the post-COVID economy.
Social protection programs can also play a role, as part of a multi-sectoral strategy, in ensuring that the
short-term impacts of the crisis do not result in irreversible harm to people’s human capital. COVID-19 shocks,
including child malnutrition, stunting, and reduced student learning, can have persistent impacts on people’s well-
being, productivity, and economic opportunity. The poor remain particularly vulnerable to long-term impacts, as they
possess fewer assets and have less access to services. Cash transfers, along with waivers on fees for basic services that
incentivize service access, including continued education participation, can help. However, such policies need to be
predictable in scope and duration because uncertainty can lead to precautionary behavior, such as excessive curtailment
of consumption or dropping out of school, which can have a durable adverse impact on human capital.
Early investments in strategies to prevent and recoup COVID-19-induced learning losses could avert long-term
losses in human capital. In-person education still dominates remote education when it comes to learning. Fortunately,
as of early September 2020, only 12 countries still had schools closed or with limitations (down from as many as
20 in April). But the situation remains fluid and countries are occasionally reclosing in response to new outbreaks.
Sustained opening requires measures to protect students, staff, teachers, and their families. Such measures include
sanitary protocols, social distance practices, and initiatives to support student re-enrollment. Learning losses can also be
mitigated through measures to adjust school curricula, as needed, and to develop rapid catch-up periods when schools
reopen. In the longer term, countries should seek to develop more resilient and inclusive education systems that can
deliver learning in the event of future crises, including through remote learning.
Trade policy
COVID-19 could deepen divisions and worsen protection. The failure to address growing inequality within countries
through progressive domestic policies was already leading to a backlash against globalization. In addition, growing
tensions between international powers and the erosion of multilateral disciplines were generating uncertainty that hurt
all trade and investment. Now COVID-19 is creating a stronger craving for self-sufficiency in an uncertain environment.
Since some countries will recover and export before others, and many governments will have subsidized their firms to
cope with COVID-19, a sense of unfairness could spawn more trade restrictions. And the pandemic could also deepen
great power divisions and renew calls for decoupling. Resisting these trends is important for recovery.
But export restrictions have also been accompanied by significant import liberalization. To cope with scarcity,
countries in the region and elsewhere are resorting to export restrictions to meet domestic demand, especially in
personal protective equipment (PPEs) and some other goods (Figure 45). Examples include restrictions on face masks
by Indonesia, Malaysia, and Thailand; Vietnam’s export curbs; and China’s minimum purchase price on rice. But the
recognition of the value of imports when domestic production was disrupted led to the steepest percentage rise in import
liberalizing measures since 2009 (by 39 percent) and the steepest percentage fall in import restricting measures (by
59 percent) in 2020.

Figure 45. Recourse to trade-restricting measures has declined significantly and to trade liberalizing measures has increased
slightly
4,000
3,000
Number of policy actions
2,000
1,000
0
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
All Harmful Liberalizing
Source: Global Trade Alert.
If the China-U.S. trade agreement was implemented through reforms and market opening in China that benefitted
all trading partners, then it could provide a 0.5 percent income boost to the world economy. The agreement, in
its original form, averted a damaging trade war and provided relief from the trade tensions that hurt the EAP region’s
economic performance in 2019. Now COVID-19 may make it difficult, at least in 2020, to meet the quantitative import
expansion commitments made by China because of the contraction in China’s demand and the likely contraction in U.S.
production. Instead of renegotiating the bilateral commitments, all countries would benefit if China opens its market to
all trading partners rather than to the United States alone. China’s income, and that of most developing countries in EAP,
could be nearly 0.5 percent higher. Moreover, turning the agreement into a model of nondiscriminatory market opening
could be a credible down payment toward the revival of a multilateral trading system—which is in the interest of both
the region and the rest of the world.
Other countries in the region seeking to take advantage of the relocation of global value chains must also
focus on goods and services trade policy reforms. For example, Indonesia is considering phasing out restrictions on
foreign investment that had reduced inflows to a relative trickle (2 percent of GDP), and is investing in roads and ports
to enhance the competitiveness of non-resource sectors of the economy. However, Indonesia also needs to make it easier
for firms to import-to-export by reforming its pre-shipment inspection, technical standards, and port-pricing strategies.
Many countries in the region penalize their firms by restricting trade and investment in services, and deprive them of
access to efficient transport, finance, communication, and other business services (Figure 46). Liberalizing services
policies is also essential to take advantage of the new opportunities in services in the post-COVID-19 world.

Figure 46. EAP countries still maintain relatively restrictive services trade policies
70
IND
IDN
60
CHN
PAN
MYS THA
Services Trade Restrictions Index (STRI)
PHL
OMN EGY
50 TUN
VNM
TUR LKA
KAZ ARG
BEL FIN MEX
AUT BRA BGD
DNK RUS
40 GRC POL FRA HUN URY NGA KEN
UKR GBR CRI
NZL ITA IRL PAK
COL KOR
PRT SWE AUS CAN
DEU
ESP ZAF DOM
USA LTU
CZE CHL
NLD
PER
30
JPN
ECU
20
0 5 10 15
Average applied Most Favored Nation (MFN) tariff (percent)
Sources: Constantinescu et al. (2018); Borchert et al. (2020).

Note: The figure presents the import weighted average tariff in 2016 for each country and the World Bank Services Trade Restrictions Index for the same year.

References
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Umut Kilinc, Denis Medvedev, Franklin Okechukwu Maduko, Stavros Poupakis, Jesica Torres, and Trang Thu Tran.
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Research Paper, forthcoming.
Borchert, Ingo, Joscelyn Magdeleine, Juan A. Marchetti, and Aaditya Mattoo. 2020. The Evolution of Services Trade Policy
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Constantinescu, Cristina, Aaditya Mattoo, and Michele Ruta. 2018. Trade in Developing East Asia: How It Has Changed
and Why It Matters, East Asian Economic Review, Volume 22(4), pp. 427–465.
Cloutier, M. H., J. P. Azevedo, and D. Goldemberg. 2020. Back to the Future: Why school reopening cannot be a return
to normal. Washington, DC: World Bank.
Demirguc-Kunt, Asli, Lokshin, Michael M., and Torre, Ivan. 2020. “The Sooner, the Better: The Early Economic Impact
of Non-Pharmaceutical Interventions during the COVID-19 Pandemic.” Policy Research Working Paper 9257,
World Bank, Washington, DC.
Espitia, Alvaro, Aaditya Mattoo, Nadia Rocha, Michele Ruta, and Deborah Winkler. 2020. Pandemic Trade. Forthcoming.
European Centre for Disease Prevention and Control. 2020. “Situation updates on COVID-19.” OurWorldInData.org
(accessed August 28, 2020), https://ourworldindata.org/coronavirus-source-data
Freund, Caroline, Aaditya Mattoo, Alen Mulabdic, and Michele Ruta. 2020. The Supply Chain Shocks from Covid-19:
Risk and Opportunity for Development?, In Simeon Djankov and Ugo Panizza (eds.), COVID-19 in developing
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Inklaar, Robert, de Jong, Harmen, Bolt, Jutta, and van Zanden. 2018. “Rebasing ‘Maddison’: new income comparisons
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References 49

Annex A1. Figures
EAP countries can be divided into three broad groups: countries that have seen a relatively low number of cases
(Cambodia, Fiji, Lao PDR, Mongolia, Myanmar, Papua New Guinea, and Timor-Leste); countries that saw an initial surge
in cases, but were able to contain further spread of the virus (China, Malaysia, Thailand, and Vietnam); and countries
that are still struggling to contain the spread of the virus (Indonesia and the Philippines) (Annex Figure A1.1). The depth
and duration of mobility restrictions in the three groups of countries appears to roughly reflect the spread of the disease
spread. Vietnam appears to have resumed activity soon after successful containment, and mobility in Malaysia and
Thailand is now close to where it was in January.
Figure A1.1. Countries that have contained the disease have curtailed mobility less
a. COVID-19 new confirmed cases (7-day moving average) in developing EAP
Number Cambodia Mongolia

of cases Myanmar Lao PDR (rhs) Number
Fiji Papua New Guinea Number China (divide by 10) Malaysia of cases Indonesia Philippines
Timor-Leste of cases Thailand Vietnam 5,000
150 20 500
4,000
16 400
100 3,000
12 300
8 200 2,000
50
4 100 1,000
0 0 0 0
3-Mar
10-Apr
29-Apr
2-Aug
14-Jul
22-Mar
11-Apr
30-Apr
10-Apr
29-Apr
21-Aug
4-Mar
23-Mar
3-Mar
22-Mar
6-Jun
3-Aug
22-Aug
2-Aug
21-Aug
15-Jul
14-Jul
18-May
6-Jan
25-Jun
19-May
18-May
9-Sep
13-Feb
25-Jan
7-Jun
26-Jun
6-Jun
25-Jun
14-Feb
13-Feb
7-Jan
26-Jan
6-Jan
25-Jan
10-Sep
9-Sep
b. Workplace mobility (percent change from baseline in January 2020, 7-days moving average)
Cambodia Lao PDR

40 Malaysia Thailand Vietnam 40 Indonesia Philippines
Mongolia Myanmar
Fiji Papua New Guinea
40
Percent change
Percent change
0 0
Percent change
0
-40 -40
–40
–80 -80 -80

15-Apr
15-Apr
15-Apr
10-Mar
28-Mar
10-Mar
28-Mar
10-Mar
28-Mar
1-Aug
19-Aug
1-Aug
19-Aug
19-Aug
14-Jul
1-Aug
14-Jul
14-Jul
3-May
21-May
21-May
3-May
21-May
3-May
8-Jun
26-Jun
8-Jun
26-Jun
26-Jun
8-Jun
21-Feb
21-Feb
21-Feb
6-Sep
6-Sep
6-Sep
Sources: Johns Hopkins University, Center for Systems Science and Engineering COVID-19 Dashboard; Google Mobility Reports; World Bank staff calculations.

Annex A2. Tables
Table A2.1. Disease progression and policy response in Vietnam, Indonesia, and the Philippines
Vietnam Indonesia Philippines

How early and First confirmed case on First confirmed case on March 2. First confirmed case on
comprehensive February 5. Travel restrictions initiated on January 25.
were mobility Early restrictions on international March 5 for people with travel Gradual expansion of travel
restrictions? arrivals starting on January 30. history to affected regions. No restrictions from late January
Closed borders and suspended all self-isolation requirements until onward. The government also
international flights March 22 to later. Domestic and international implemented repatriation and
date. ban except for repatriation flights 14-day quarantine for returning
Schools closed while cases in from April 24 to June 1, covering overseas Filipinos from these
single digits. Strict nationwide busiest period. Flight ban lifted areas, as well as cruise ship
lockdown from April 1 to 15. No with safety measures in place. returnees.
local transmission until mid-July Schools in most affected areas Lockdowns March 15–April 30 for
and domestic economy opened up. closed at end of March. Partial Metro Manila expanded to Luzon.
Targeted lockdowns introduced lockdown introduced mid-late Degrees of lockdown continue to
in July following new cases in March with authority delegated exist, varying by local government
selected areas of the country. to subnational governments; authorities.
relaxed in June; re-imposed on
September 14.
How adequate Strong testing capacity from early Testing capacity has been scaled Testing capacity scaled up since
was testing on: 123 laboratories across the up from 3,000 to 30,000 tests per March through establishment of
capacity country with capacity of 46,000 day; 40% of capacity in worst-hit local laboratories from 200 to
and how samples per day. Jakarta. 29,000 per day.
comprehensive Positive cases diagnosed per Positive cases diagnosed per test Positive cases diagnosed per
was the test carried out to date: 0.12%. carried out to date: 13.20%. test carried out to date: 8.50%
testing,
tracing, and Testing targeted at four tiers Tracing relies on the government Tracing capacity remains weak
isolation of close contacts and people local health offices and primary despite 50,000+ contact tracers
strategy? with symptoms. Recently been health care facility network, plus tracing apps developed by
expanded to hot spot communities (Puskesmas) and is hampered local software companies.
and at-risk settings. by stigma as well as capacity PhilHealth approved community
Local centers for disease control constraints. Surveillance system benefit package in April covering
collaborating with hospitals in is not fully interoperable—the all identified services needed to
case detection, isolation, and information is not yet linked with effectively manage cases needing
treatment. laboratory or service delivery data; isolation services.
also largely manual.
Confirmed positive case (Tier 1) Quarantine and isolation capacity
must be isolated and treated in Isolation facilities are established gradually expanded.
health facilities. at the national and subnational
levels.
Home-based isolation of confirmed
cases not allowed in Vietnam to
prevent transmission to family
members and community.
Annex A2. Tables 51

Vietnam Indonesia Philippines

Was Clear, strong communication Public communication coordinated Information programs are still
communication from central government about by the National Task Force. limited and need to be expanded.
clear and the dangers of the illness even Focused on behavior change: Department of Health (DOH)
consistent before the first case was reported. wearing masks in public, established a dedicated website
throughout? Risk communication strategy took social and physical distancing, to provide latest information and
advantage of Vietnam’s high use handwashing, and workplace updates. Several Local Government
of social media. Overall, public prevention. Units (LGUs) provide information
and private telecom companies by social media.
have collectively sent billions of The national and local COVID
messages on COVID-19 prevention task forces public communication DOH provides daily bulletin on the
to mobile phone users so far. webpages include ‘Hoax Buster’ current nationwide total cases.
feature to counter misinformation.
Table A2.2. Developing East Asia and Pacific: baseline and lowercase GDP growth projections
Forecastd
Baseline Low case Baseline Low case
2017 2018 2019a 2020 2020 2021 2021
Developing EAPa 6.5 6.3 5.8 0.9 0.3 7.4 4.5
China 6.8 6.6 6.1 2.0 1.6 7.9 4.8
Developing EAP excluding. Chinaa 5.4 5.2 4.8 –3.5 –4.8 5.1 3.4
Developing ASEANa 5.4 5.3 4.8 –3.5 –4.7 5.1 3.4
Indonesia 5.1 5.2 5.0 –1.6 –2.0 4.4 3.0
Malaysia 5.7 4.7 4.3 –4.9 –6.1 6.3 4.4
Philippines 6.9 6.3 6.0 –6.9 –9.9 5.3 2.9
Thailand 4.0 4.1 2.4 –8.3 –10.4 4.9 3.5
Vietnam 6.8 7.1 7.0 2.8 1.5 6.8 4.5
Cambodia 7.0 7.5 7.1 –2.0 –2.9 4.3 3.0
Lao PDR 6.9 6.3 4.7 –0.6 –2.4 4.9 2.8
Myanmarc 5.8 6.4 6.8 0.5 –0.9 5.9 3.0
Mongolia 5.4 7.0 5.0 –2.4 –4.3 5.6 3.6
Fiji 5.4 3.5 –1.3 –21.7 –25.0 6.4 5.1
Papua New Guinea 3.5 –0.8 5.9 –3.3 –4.1 3.2 0.6
Solomon Islands 5.3 3.9 1.2 –4.8 –7.4 3.2 2.8
Timor-Lesteb –3.8 –0.8 3.4 –6.8 –9.8 3.1 3.0
Note: a. Estimate. b. Nonoil GDP. c. Myanmar growth rates refer to the pre- and post-pandemic period for fiscal year from October to September. d. Baseline refers to a scenario of severe growth slowdown followed by a
strong recovery. Lower case refers to a scenario of a deeper contraction followed by a sluggish recovery. Weighted averages are calculated for developing EAP.

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WORLD BANK EAST ASIA AND PACIFIC ECONOMIC UPDATE OCTOBER 2020

FROM CONTAINMENT TO RECOVERY

10187-EAP Economic Update_CVR_BLK_74701.indd 1 9/28/20 3:04 PM

From Containment to Recovery

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List of Abbreviations viii

Exposure to a World Economy in Trouble 3

The Economic Impact 5

The Government Response 12

Prospects for Recovery 15

Implications for Inclusive Growth  19

An Integrated View of Policy 33

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Box 1. The correlates of successful containment  2

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AMC Advanced Market Commitment MFN Most Favored Nation

Country Abbreviations LAO Lao People’s Democratic Republic

viii List of Abbreviations

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List of Abbreviations continued

TON Tonga USA United States

Currency Units Kip Lao kip

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Preface and Acknowledgments

The report was edited and typeset by Shepherd, Incorporated.

10187-EAP Economic Update_74701.indd 10 9/28/20 1:42 PM

Throughout the report, geographic groupings are defined as follows:

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From Containment to Recovery

Loss of earnings due to

Shock to the rest of the Government economic

Source: World Bank Staff elaboration.

a. Total confirmed cases b. New confirmed cases

From Containment to Recovery 1

10187-EAP Economic Update_74701.indd 1 9/28/20 1:42 PM

Box 1. The correlates of successful containment

Disease Response Government action

2 FROM CONTAINMENT TO RECOVERY

10187-EAP Economic Update_74701.indd 2 9/28/20 1:42 PM

a. Impact of more stringent lockdown b. Impact of open testing policy

Exposure to a World Economy in Trouble

From Containment to Recovery 3

10187-EAP Economic Update_74701.indd 3 9/28/20 1:42 PM

a. Exposure to trade and remittances b. Capital flow exposure

Goods exports Foreign direct investment

Source: World Bank.

Figure 4. Much of the world has sunk into an unprecedented recession

Percent (red) Percent (orange)

GDP per capita growth contraction

inflation, monetary policy, Global

4 FROM CONTAINMENT TO RECOVERY

10187-EAP Economic Update_74701.indd 4 9/28/20 1:42 PM

Figure 5. COVID-19 has created exceptional uncertainty

World Uncertainty Index

The Economic Impact

China's Asian Global

List of Abbreviations viii

Exposure to a World Economy in Trouble 3

The Economic Impact 5

The Government Response 12

Prospects for Recovery 15

Implications for Inclusive Growth 19

An Integrated View of Policy 33

Box 1. The correlates of successful containment 2